Question

Variable costs are costs that..

a Vary inversely with changes in activity.
b Increase on per unit basis as activity increases.
c Decrease on per unit basis as activity increases.
d Remains constant as activity changes.
e Vary directly with changes in activity.

Answer 1

Variable costs in business increase or decrease with output by changing the variable inputs. Examples of variable costs include labor and raw materials. This is in contrast to fixed costs, which remain constant regardless of the level of production.

Step-by-step explanation:

Variable costs are the costs of the variable inputs (e.g. labor). The only way to increase or decrease output is by increasing or decreasing the variable inputs. Therefore, variable costs increase or decrease with output. We treat labor as a variable cost, since producing a greater quantity of a good or service typically requires more workers or more work hours. Variable costs would also include raw materials.

Variable costs are expenses that change in direct proportion to the level of activity or production volume. As activity increases, variable costs increase, and as activity decreases, variable costs decrease. This is in contrast to fixed costs, which remain constant regardless of the level of production. Examples of variable costs include direct materials, direct labor, and variable overhead costs. The key characteristic of variable costs is their responsiveness to changes in activity levels.