Total variable costs

Definition

Total variable costs are the overall expenses that change in direct proportion to the level of production or sales volume. These costs increase as production increases and decrease as production decreases.

5 Must Know Facts For Your Next Test

1. Total variable costs include expenses such as raw materials, direct labor, and utilities used in production.
2. They are an essential component in calculating the total cost of production.
3. Unlike fixed costs, total variable costs fluctuate based on output levels.
4. In cost-volume-profit analysis, understanding total variable costs helps determine break-even points.
5. Total variable costs are graphed as a linear function when plotted against units produced.

Review Questions

• What factors cause total variable costs to increase or decrease?
• How do total variable costs differ from fixed costs?
• Why is it important to understand total variable costs in managerial accounting?

Related terms

Fixed Costs: Costs that remain constant regardless of the level of production or sales volume.

Mixed Costs: Costs that have both fixed and variable components.

Break-Even Point: The level of sales at which total revenues equal total costs, resulting in zero profit.