How Do You Calculate Variable Costs?

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Ready Ratios states that variable costs are calculated by dividing marginal costs over units produced. Variable costs are expenses that vary according to production output, so they rise and fall with a company's level of production.

Variable expenses differ from fixed expenses in that they change with a company's production activities. Investopedia identifies expenses like rent, advertising and insurance as fixed costs because they do not change with production output. Variable costs, on the other hand, go up when production increases and go down when production decreases. According to Ready Ratios, expenses such as raw materials, utilities, wages and packaging are all considered variable costs.