A variable cost is a constant amount per unit produced or used. Therefore, the total amount of the variable cost will change proportionately with volume or activity. Generally, a product's direct materials are a variable cost.

To illustrate, let's assume that a bakery uses one pound of flour at a cost of \$0.70 per pound for every loaf of bread it produces. If no bread is produced the total cost of flour is \$0. If one loaf is produced the total cost of flour is \$0.70. When 10 loaves are produced the total cost of flour is \$7.00. At the volume of 30 loaves the cost of flour is \$21 (30 loaves X 1 pound X \$0.70 per pound).

An expense can also be a variable cost. For instance, if a company pays a 5% sales commission on every sale, the company's sales commission expense will be a variable cost. When the company has no sales the total sales commission expense is \$0. When sales are \$100,000 the sales commission expense will be \$5,000. Sales of \$200,000 will mean total sales commission expense of \$10,000. Sales of \$400,000 will result in total sales commission expense of \$20,000.