When it comes to running a business, the expenditure that the organization will be required to incur is aplenty. Ascertaining these costs is crucial in terms of understanding how much profits you will be required to incur if you wish to keep your business afloat and consider scaling.
4 Best Examples Of Variable Expenses
That being said, not all costs behave the same way, so categorizing them according to their nature and then determining their value helps to a large extent. One such category of expenses that a business will have to deal with is that of variable expenses. Variable expenses are basically the kind of expenses that do not have a fixed value, but rather, differ depending on various factors.
Here, are a few examples to help you understand such a type of expense in its entirety.
Utility expenses refer to the payments made for utilities such as water, electricity, heat, et cetera. These are usually incurred to keep the office spaces or factory outlets running. However, the value of the expenses incurred for such a purpose depends upon their usage, which means that you will have to pay for it only to the extent that it was used. Generally, for utility expenses, there is a specific rate or amount set in place in accordance with a specific time interval, and you will only be required to cover the costs for the time period during which you made use of it.
Raw materials are the primary level of materials that are used to develop the product which business organizations are offering for sale. The costs incurred for the usage of such raw materials are completely dependent on the number of products you wish to produce. As a result, the value of such expenses differs in proportion to the stock that the business organization needs to maintain to fulfill the requirements of its customers, which means that the cost of raw materials is a variable expense.
Service Charges Depending On Time
Business organizations employ the usage of various professional services from time to time depending on their needs. Services such as legal services, consultancy services, et cetera, which are made use of, are most often charged on an hourly basis or a specific time period such as it. This means that the expenses that the firm incurs for such services will depend on the number of hours for which they have employed their use, and as a result, falls into the category of variable expenses.
Billable Staff Salaries
The way that the company pays its workers varies depending on the organization. If the company pays its employees a specific amount regularly, then such a cost would be considered as a fixed cost. However, when the billable amount is dependent on the amount of work they have done, or the hours that they have punched in, then the cost falls under the purview of variable expenses, and shifts regularly.
A single business organization has to incur a plethora of variable expenses on a regular basis, and the above-mentioned examples form a small set of the entire chunk of actual expenses. That being said, understanding the concept of variable expenses can be done with a few examples, and this grasp on the concept of variable costs is crucial towards managing a business organization.