For manufacturing firms, the true variable costs are your direct materials and direct labor. If you operate a retail firm, your inventory is a variable cost. For manufacturing and retail firms, variable costs are sales commissions and shipping costs. The variable portion of your factory overhead, such as utilities and replacement parts and supplies, vary with sales volume. In contrast, step-variable costs only change if sales increase or decrease significantly. For example, the number of hours maintenance employees work changes in response to overtime demands or decreasing sales.