What is Variable Cost?
Variable or variable logistics cost is associated with inventory movement, storage, and handling. This cost comprises transportation, warehousing, and inventory carrying costs. The number of shipments usually determines variable logistics costs, distance traveled, and the volume of goods shipped.
Significance of Variable Cost in Logistics and E-commerce
Variable costs are substantial because they are associated with storing and transporting goods and services. To learn more about how variable costs can be effective, refer to these pointers.
1. Variable costs enable companies to manage resource utilization and optimize cost. It helps reduce resource waste and costs, allowing businesses to remain competitive.
2. These costs are more flexible, allowing companies to plan better for sudden changes in demand and adapt their operations accordingly.
3. These costs enable businesses to better manage their operations and customer service. In turn, this helps to provide customers with faster delivery times, better product quality, and more efficient customer service.
4. Variable costs enable businesses to track better and analyze trends in e-commerce. It helps to identify the most effective and efficient methods for meeting customer needs.
Prerequisites of Variable Cost and How It Works
Variable costs are a vital component of the cost of goods sold (COGS) calculation. Here are the provisions for calculating the variable logistics cost.
1. Knowledge of cost accounting: A basic understanding of cost accounting is necessary to understand and calculate variable costs. Cost accounting is analyzing and tracking costs associated with a company’s operations.
2. Understanding of fixed costs: Fixed costs do not directly correlate with producing goods and services and are usually not included in the COGS calculation.
3. Knowledge of variable costs: Variable costs fluctuate with production or sales volume. They are the expenses directly related to the production of goods and services and are typically included in the COGS calculation.
Use Cases of Variable Cost
Variable logistics cost is the cost of transporting goods that varies depending on the distance, the weight of the goods, the type of goods, and other factors. For instance, a company may transport goods from the Philippines to Australia. The cost of this shipment will vary depending on the size of the goods, weight, and distance the goods will travel. The cost may also vary depending on the shipping method used, such as air or sea freight.