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Variable cost refers to the sum of all the material cost and the labour cost needed for producing one unit of the product. The average variable cost is almost equal to the total variable cost divided by the number of units produced.
The fixed costs are easier on budget and it remains the same across the year. Fixed costs are less controllable as it is not related to volume or operations. The change over a specified period can be associated directly to the business activities and is considered an important component in the management and calculation of the total expenses.
Certain variable expenses are also known as a unit-level expense as it changes with the number of units produced. Such expenses increase in the proportion to the capital and the labour.
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