Input costs and variable costs are crucial components affecting a business's financial performance by impacting the cost of production and profitability.
Input costs are the prices of the various inputs needed to produce a good or service. These costs include wages, materials, and utility expenses. When input costs increase, the cost of production rises, potentially impacting a firm's profitability.
Variable costs, such as labor and raw materials, are directly tied to the quantity of output and fluctuate with production levels. Increasing output requires more variable inputs, leading to higher costs. Understanding input costs and variable costs is crucial for businesses to assess their financial performance accurately.
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