What is Variable Cost?

Legal Definition
Variable costs are costs that change in proportion to the good or service that a business produces. Variable costs are also the sum of marginal costs over all units produced. They can also be considered normal costs. Fixed costs and variable costs make up the two components of total cost. Direct costs, however, are costs that can easily be associated with a particular cost object. However, not all variable costs are direct costs. For example, variable manufacturing overhead costs are variable costs that are indirect costs, not direct costs. Variable costs are sometimes called unit-level costs as they vary with the number of units produced.

Direct labor and overhead are often called conversion cost, while direct material and direct labor are often referred to as prime cost.

In marketing, it is necessary to know how costs divide between variable and fixed. This distinction is crucial in forecasting the earnings generated by various changes in unit sales and thus the financial impact of proposed marketing campaigns. In a survey of nearly 200 senior marketing managers, 60 percent responded that they found the "variable and fixed costs" metric very useful.

The level of variable cost is influenced by many factors, such as fixed cost, duration of project, uncertainty and discount rate. An analytical formula of variable cost as a function of these factors has been derived. It can be used to assess how different factors impact variable cost and total return in an investment.
-- Wikipedia
Legal Definition
Variable costs are corporate expenses that vary in direct proportion to the quantity of output such as the direct material used to product a product. An example would be the cost of a tomato when making and selling a sandwich. The amount spent on buying tomatoes varies directly with the number of sandwiches made. Contrast this to a fixed cost such as the cost of rent which does not change depending on the number of sandwiches made.