Variable cost is defined as an expense that varies directly with the level of  production or usage, changing based on the quantity of goods or services produced

For instance, in a bakery, if more cakes are produced, the costs for ingredients  such as flour, sugar, and packaging will increase, categorizing these as variable costs.

How to Understand :  

Variable costs increase with higher production levels and decrease when production is  reduced.

Importance :

They are crucial for businesses to accurately calculate their profits, as they directly  impact overall expenses.

Variable costs are instrumental in making informed pricing decisions, ensuring products  are competitively priced.

They are important for effective budgeting and managing operational expenses.

Understanding variable costs aids businesses in determining break-even points, which is  essential for financial planning.