Variable cost refers to expenses that change in direct proportion to the level of production or sales. Unlike fixed costs, which remain constant regardless of output, variable costs increase as more products are made or sold. Common examples include costs for raw materials, labor, and shipping. Businesses closely monitor variable costs to manage their budgets effectively. Understanding these costs helps companies set prices and make decisions about scaling production. By analyzing variable costs, businesses can identify areas for efficiency improvements and better predict their overall profitability.