Variable Costs
Definition
Costs that move more or less in proportion to volume, such as materials, per-unit labour, packaging and payment processing fees. Subtracting them from revenue gives contribution margin.
Related Terms in Financial Analysis
Accounts Payable Turnover
Total purchases or cost of sales divided by average accounts payable, showing how many times a year the business settles its supplier balances. A falling ratio can signal either deliberate cash conservation or genuine payment strain.
Days Payable Outstanding (DPO)
The average number of days a business takes to pay its suppliers, calculated as average accounts payable divided by cost of sales, times the days in the period. Stretching DPO funds working capital but risks supplier relationships and early-payment discounts.
Days Sales Outstanding (DSO)
The average number of days taken to collect payment after a sale, calculated as average accounts receivable divided by revenue, times the days in the period. Rising DSO is usually the earliest warning of a cash-flow problem.
Job Costing
Assigning materials, labour and overhead to a specific job, project or contract so profitability can be read per job rather than only in aggregate. Standard practice in construction, agencies, manufacturing to order and professional services.
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