What is typically considered a part of variable expenses?

Variable expenses are costs that change in relation to the level of service or production. Utilities that change by usage, such as electricity and water, are a prime example of variable expenses because their costs fluctuate depending on how much is consumed. For instance, during peak usage times, the amount billed for utilities may increase significantly, while during periods of less usage, the costs will decrease. This inherent variability makes these expenses distinct from fixed costs, which remain constant regardless of consumption or production levels.

In contrast, real estate taxes, insurance premiums, and employee salaries tend to remain more consistent and predictable, regardless of changes in business activity or usage, thereby classifying them as fixed or semi-variable costs rather than variable expenses. Understanding the distinction between variable expenses and fixed costs is essential for accurate budgeting and financial planning in business operations.