Question

Items that vary in direct proportion to patient volume, such as clinical supplies and laboratory procedures, are commonly known as:

A) Fixed costs
B) Variable costs
C) Operating expenses
D) Overhead costs

Answer 1

Variable costs increase or decrease with output, while fixed costs do not change 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.

On the other hand, fixed costs are expenditures that do not change regardless of the level of production. For example, the rent on a factory or a retail space is a fixed cost. Once you sign the lease, the rent remains the same regardless of how much you produce.