What is the role of variable costs in determining the pricing strategy?

What is the role of variable costs in determining the pricing strategy?

Variable costs play a crucial role in determining the pricing strategy of a product or service. These costs directly vary with the level of production or sales volume. By considering variable costs, businesses can determine the minimum price at which they can sell their products or services to cover these costs and avoid losses. Additionally, variable costs help in determining the break-even point, which is the level of sales at which total revenue equals total variable costs. This information is essential for businesses to set their pricing strategy, as it allows them to determine the minimum price required to cover variable costs and achieve profitability.