Total costs include both variable costs and fixed costs. Variable costs are costs which can beeasily identified or related to a cost per unit or activity level of some kind for example a cost which falls or rises directly with the provision/production of a service or good within an organisation. Illustrations could include labour piece work schemes for example a factory worker that gets paid for every unit they make or cost of material/components for production or assembly of a product.

All variable cost starts from origin of the graph indicating the cost is nil if activity level is zero. Variable cost doesn't essentially behave in a linear manner for example a constant amount incurred for each unit of activity. It can behave in a curvilinear (non-linear) manner as well, in which case the variable cost line will be curved not straight.

In diagram it can be observed that at activity zero total cost is equal to fixed costs. At this point there aren't any variable costs as there is no activity only fixed costs. Between activity levels zero and B we can determine that total cost line is increasing at constant level. Constant increase is because of variable costs being incurred as a result of increasing activity.

Total costs increases in a stepped fashion at activity levels B and D due to the costs behaviour of fixed costs. It can be determined that variable costs are increasing at the same constant rate within total costs up to activity level D, after this point it can be seen that total costs line increases more steeply. This is because of increased variable costs per unit.