Variable cost

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.

It can be used to assess how different factors impact variable cost and total return in an investment.

If the business uses a room, a sewing machine, and 8 hours of a laborer's time with 6 yards of cloth to make a shirt, then the cost of labor and cloth increases if two shirts are produced, and those are the variable costs.

If its total revenue is less than its variable cost in the short run, the business should shut down.

If revenue is greater than total cost, this firm will have positive economic profit.

The company must pay for the building, the employee benefits, and the machinery regardless of whether anything is produced that day.