Managing Variable Costs

As the name indicates variable costs are the costs that fluctuate or change with the number of goods produced by the business. Variable costs along with the fixed costs comprise the total costs of the goods produced. Variable costs change with the percentage of the production output of a business. Variable costs are directly proportional to the volume of goods produce as the volume increases variable costs also increase and viceversa. Variable costs play a vital role in increase and decrease of total cost of a production batch over a specific period of time. Here are some key tips to manage variable costs:-

Scrutinizing the Products

In order to manage or cut the variable costs the first step a business must take is to scrutinize their products. They must keep the cost effective product line and eliminate those products that are making the least profit.

Target the variable costs more as compared to fixed costs

Cutting down variable costs is easier as compared to cutting down the fixed costs. Cutting down variable costs such as advertising costs will not hurt the business as compared to cutting down the cost involved in installing a new plant in the manufacturing unit.

Analyze each Expense

In order to cut the variable costs you must analyze each and every expense of your business. Cut the expenses that are not adding value to your business. This strategy may help in managing variable costs

Keep an eye on Costs constantly

Do not stop analyzing the costs after your long term and short term goals are met. Keep a constant eye on your business and always try to find out ways of cutting costs.

Other Related Accounting Articles:

• Effect of Change in Variable Cost and Sales Volume on Contribution Margin and Profitability
• Limitations of Cost-Volume-Profit (CVP) Analysis
• Effect of Change in Variable Cost, Fixed Cost and Sales Volume on Contribution Margin and Profitability
• Importance of Contribution Margin – Advantages of Cost Volume Profit (CVP) Analysis
• Types of Business Costs
• Assumptions of Cost-Volume-Profit (CVP) Analysis
• Effect of Change in Fixed Cost and Sales Volume on Contribution Margin and Profitability
• Effect of Change in Regular Sales Price on Contribution Margin and Profitability
• Cost Volume Profit (CVP) Relationship in Graphic Form
• Mixed Cost