Variables and FormulasVariable Costs: Costs that change in direct proportion to the level of activity or production. Fixed Costs: Costs that remain constant regardless of the level of activity or production.ConceptsVariable Costs: Costs that change in direct proportion to the level of activity or production. Examples include direct materials, direct labor, and commissions. Fixed Costs: Costs that remain constant regardless of the level of activity or production. Examples include rent, salaries, and insurance.Main BodyLet's delve into the details of variable and fixed costs and how they are estimated in forecasting operating expenses.Step $1$: Variable Costs Variable costs are costs that change in direct proportion to the level of activity or production. Examples of variable costs include:Direct materials: Raw materials used in the production process.Direct labor: Wages paid to workers directly involved in the production process.Commissions: Fees paid to salespeople based on the number of units sold.To estimate variable costs in forecasting operating expenses, you can use the following formula:Variable Costs $=$ Variable Cost per Unit x Number of Units ProducedStep $2$: Fixed Costs Fixed costs are costs that remain constant regardless of the level of activity or production. Examples of fixed costs include:Rent: The cost of leasing a building or space.Salaries: Wages paid to employees who are not directly involved in the production process.Insurance: The cost of insuring the business against various risks.To estimate fixed costs in forecasting operating expenses, you can use the following formula:Fixed Costs $=$ Fixed Cost per Period x Number of PeriodsStep $3$: Combining Variable and Fixed Costs To estimate total operating expenses, you can combine variable and fixed costs using the following formula:Total Operating Expenses $=$ Fixed Costs $+$ Variable CostsFinal AnswerVariable costs and fixed costs are essential components of forecasting operating expenses. Variable costs change in direct proportion to the level of activity or production, while fixed costs remain constant regardless of the level of activity or production. Examples of variable costs include direct materials, direct labor, and commissions, while examples of fixed costs include rent, salaries, and insurance. To estimate variable costs, you can use the formula Variable Costs $=$ Variable Cost per Unit x Number of Units Produced, and to estimate fixed costs, you can use the formula Fixed Costs $=$ Fixed Cost per Period x Number of Periods. By combining variable and fixed costs, you can estimate total operating expenses using the formula Total Operating Expenses $=$ Fixed Costs $+$ Variable Costs.