Final answer:
Variable expenses change with production levels and include costs such as raw materials, utilities, direct labor, commissions, shipping, and variable marketing expenses. Total costs are a combination of fixed and variable costs.
Step-by-step explanation:
Expenses can be categorized into two main types: fixed costs and variable costs. Fixed costs are expenses that remain constant regardless of the level of production or sales, such as rent or the costs of machinery. Variable costs, on the other hand, fluctuate with the level of production or sales. Common types of variable expenses include:
- Raw materials and inventory costs
- Utilities that vary with usage, like electricity and water
- Direct labor costs, such as wages for hourly employees
- Commission fees tied to sales performance
- Shipping and handling charges for products sold
- Marketing and advertising expenses if they change with campaigns
Total costs consist of the sum of fixed and variable costs. Understanding how these costs behave at different production levels is essential for budgeting and financial planning.