when production increases variable costs rise when production decreases these expenses drop variable costs also vary by industry so it s important for anyone analyzing companies to make comparisons between those that are in the same industry 
examples of variable costs include the cost of labor utilities raw materials shipping costs and commissions another type of expense is a hybrid between fixed and variable costs semi variable costs are composed of fixed and variable components which means they are fixed for a certain production level after this threshold the costs become variable some of the most common examples of semi variable costs include those for repairs and electricity special considerationsfixed expenses can be used to calculate several key metrics including a company s breakeven point and operating leverage a breakeven analysis involves using both fixed and variable costs to identify a production level at which revenue equals costs this can be an important part of cost structure analysis a company s breakeven production quantity is calculated by breakeven point fixed costs sppu vcpu where sppu sales price per unit vcpu variable cost per unit begin aligned text breakeven point frac text fixed costs text sppu text vcpu textbf where text sppu text sales price per unit text vcpu text variable cost per unit end aligned breakeven point sppu vcpufixed costs where sppu sales price per unitvcpu variable cost per unit a company s breakeven analysis can be important for decisions that must be made about fixed and variable costs the breakeven analysis also influences the price at which a company chooses to sell its products operating leverage is a cost structure metric used in cost structure management companies can generate more profit per additional unit produced with higher operating leverage the proportion of fixed to variable costs influences a company s operating leverage higher fixed costs help operating leverage to increase you can calculate operating leverage using the following formula operating leverage q p v q p v f where q number of units p price per unit v variable cost per unit f fixed costs begin aligned text operating leverage frac text q times text p text v text q times text p text v text f textbf where text q text number of units text p text price per unit text v text variable cost per unit text f text fixed costs end aligned operating leverage q p v fq p v where q number of unitsp price per unitv variable cost per unitf fixed costs cost structure management and ratiosin addition to financial statement reporting most companies closely follow their cost structures through independent cost structure statements and dashboards independent cost structure analysis helps a company fully understand its fixed and variable costs and how they affect different parts of the business as well as the total business overall many companies have cost analysts dedicated solely to monitoring and analyzing a business s fixed and variable costs the fixed charge coverage ratio on the other hand is a type of solvency metric that helps analyze a company s ability to pay its fixed charge obligations the fixed charge coverage ratio is calculated with the following equation ebit fixed charges before tax fixed charges before tax interest begin aligned frac text ebit text fixed charges before tax text fixed charges before tax text interest end aligned fixed charges before tax interestebit fixed charges before tax the fixed cost ratio is a simple ratio that divides fixed costs by net sales it s used to determine the proportion of fixed costs involved in production 