Costs that vary in total in direct proportion to changes in an activity level are called variable costs. An expense for the company that varies according on how much is produced or sold is called a variable cost. Depending on a company's production or sales volume, variable costs grow or fall.
They climb as production rises and reduce as production declines. A retail business' credit card transaction fees or shipping costs, which increase or decrease with sales, are examples of variable costs. A fixed cost and a variable cost can be compared. The contribution margin of a product, the parameter used to establish a company's break-even.
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