Variable costs are 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 raw materials, labor directly involved in production, and shipping costs. Businesses closely monitor variable costs to manage their budgets effectively. Understanding these costs helps companies set prices, forecast profits, and make informed decisions about scaling operations. By analyzing variable costs, businesses can identify areas for improvement and enhance overall efficiency in their operations.