Definition of Variable Cost. Variable costs are expenses that fluctuate proportionally with the quantity of output. Variable costs are directly tied to the activities of producing volume, which rises when these activities increase and falls when activities decrease.This effect can be related to materials, labor, and sales commissions.he formula to calculate variable cost is: Total Variable Cost = Total Quantity of Output * Variable Cost Per Unit of Output. To recognize variable costs, it is important to understand how to categorize costs. Variable costs are those which do not remain constant, specifically when production activities fluctuate.