Variable Cost

Variable cost is an expense that changes as the level of production or sales changes. In a restaurant, variable costs commonly include food ingredients, beverage purchases, packaging and some transaction fees. Certain labour costs may also vary with sales or production, depending on staffing practices, but wages are not automatically variable in every business.

Examples in a restaurant

• Food cost: ingredients used to prepare dishes generally increase as more portions are sold.
• Beverage cost: wine, beer, spirits and non-alcoholic beverages consumed in sales.
• Packaging: takeaway containers, cups, lids and bags that increase with takeaway orders.
• Payment fees: some merchant fees vary with transaction volume or value.
• Variable labour: additional hourly shifts or casual labour scheduled when business volume increases.

Variable cost per unit

Variable cost per unit is the variable expense required to produce or sell one item or portion. If the ingredient cost of a dish is $8 and 100 portions are sold, the direct ingredient cost is $800, assuming the portion cost remains constant.

Variable versus fixed and semi-variable costs

Variable costs change with activity. Fixed costs, such as base rent, generally remain stable over a relevant range of activity. Semi-variable costs contain both fixed and variable components, such as a utility bill with a base charge plus usage.

Example: food purchases rise as more meals are sold, while monthly rent generally remains the same regardless of the number of covers.

Chef’s note: classify costs according to how they behave in your operation. Labour may be fixed, variable or semi-variable depending on contracts, minimum staffing and scheduling practices.