Final answer:
Craigmont Company's direct materials costs are considered variable costs because they vary depending on production output, with more production requiring more raw materials and thus higher costs.
Step-by-step explanation:
Craigmont Company's direct materials costs would be classified as variable costs. Variable costs are those that fluctuate in direct proportion to the production output. This is because producing a greater quantity of goods typically requires more inputs such as labor and raw materials.
For instance, in manufacturing, if a company produces more units, they would need to purchase more raw materials to meet the production demand, which leads to higher material costs. Conversely, with fewer units produced, less raw material is required, and costs will decrease.
Fixed costs, on the other hand, are expenses that do not change with the level of production, such as rent on a factory, which remains constant regardless of how many units are produced. Semi-variable costs are partly fixed and partly variable. Overhead costs could include a mix of fixed and variable costs, but they are not exclusively associated with direct materials.