A variable cost is an expense that fluctuates in direct proportion to changes in production or sales. Unlike fixed costs, which remain constant regardless of output, variable costs rise or fall depending on the level of activity within a business. These costs can include raw materials, labor, and other resources that are directly tied to the production process. As a result, variable costs can have a significant impact on a company’s profitability, as they can increase or decrease depending on the success of the business. Understanding and managing variable costs is crucial for businesses to maintain financial stability and make informed decisions about pricing and production.