Cambridge O Level Business Studies · Syllabus 7115 · Operations Management
Variable Costs
What is Variable Costs?
Costs that change directly with the level of output, such as direct materials, piece-rate wages and packaging. Total variable cost is variable cost per unit multiplied by output whenever the cost per unit is constant, and variable costs fall to zero when nothing is produced.
This definition is part of the Operations Management chapter in Cambridge O Level Business Studies.
Variable Costs in context
Production methods, cost behaviour and break-even analysis together decide whether a business can make what customers want at a price the market will support. Job, batch and flow production are not ranked best to worst; volume, variety, customisation, capital and demand stability determine which method fits a given product. Fixed costs stay the same regardless of output, while variable costs rise directly with it, and contribution per unit — price minus variable cost — sets both the break-even output and the margin of safety. Economies of scale then reduce average cost as output grows, while diseconomies of scale raise it once a business becomes too large to coordinate effectively.