What are variable costs?

Variable costs are expenses that change in direct proportion to the volume of services and products provided by a business. This means that as the output increases, variable costs increase, and conversely, they decrease when output is reduced. In a community pharmacy, for instance, this can include costs for medications, supplies, and other consumables that are directly tied to the number of prescriptions filled or services rendered.

Understanding variable costs is crucial for effective financial management, as they play a significant role in determining profitability and can impact pricing strategies. By analyzing these costs in relation to sales volume, pharmacies can make informed decisions regarding inventory management, pricing, and cost control measures.