Final answer:
The statement is true; variable costs are those costs that vary directly with the level of production or volume, such as labor or raw materials. An example is a barber shop's labor costs increasing with the number of haircuts provided.
Step-by-step explanation:
The statement that costs that increase when volume increases and decrease when volume decreases are commonly referred to as variable costs is true. Variable costs are those linked to production volumes or business activity levels. For instance, labor costs in a factory can be considered variable costs because as the factory produces more items, it may need to hire more workers or have existing workers work more hours. Similarly, the cost of raw materials is variable, as more materials are needed to produce more of a product.
An example of this concept is a barber shop scenario where the fixed costs such as rent for the space remain constant while the costs for hiring additional barbers (variable costs) increase with the number of haircuts provided. The more services rendered, the higher the labor costs will be, illustrating the direct relationship between variable costs and production volume.