Question

Select the appropriate definition for each of the following costs: Required: Varies directly and proportionally with changes in volume.

a. Fixed Cost
b. Variable Cost
c. Semi-Variable Cost
d. Mixed Cost

Answer 1

Variable costs change in direct proportion to changes in production volume, such as labor and raw materials, rising with increased production and decreasing with lower production levels. The correct option is b.

Step-by-step explanation:

The cost that varies directly and proportionally with changes in volume is called variable cost. These costs rise as production increases and decrease when production levels drop. In business terms, variable costs are associated with the variable inputs, like labor and raw materials.

An example is, producing a larger quantity of a product generally requires more labor hours or more materials, hence the costs associated with these inputs will vary depending on the level of production. For instance, the more garments a clothing manufacturer produces, the more fabric they will need, resulting in higher variable costs.

Variable costs are the costs of the variable inputs (e.g., labor). These costs vary directly and proportionally with changes in volume. As the level of production increases, variable costs also increase, and as the level of production decreases, variable costs decrease. Examples of variable costs include labor costs and raw material costs.