Variable cost is a situation usually encountered in business when sourcing materials is done on an ad hoc or opportunistic basis, rather than within the set parameters of a contract or other form of supply agreement. The main reason for using a variable cost base is to take advantage of price movements in the wider market. Changes in the cost of materials, goods and services may provide opportunities for added profit,and it's also quite common that when accessing these business needs, if a business does not regularly require them, it may be simpler to acquire them on the open market.
Examples of Variable Cost:
|Spot prices for precious metals.|
Services required on an occasional basis.
Purchases not made on a regular basis.
Decomposing total costs as fixed costs plus variable costs.