Variable costs _____ production volume.

• A. Change with
• B. Remain constant
• C. Increase with production
• D. Decrease with production

Answer: (A)

Variable costs are expenses that change in total when production volume changes. As you produce more units, you need more direct materials and more direct labor, and utilities tied to production typically rise, so the total variable cost increases. Conversely, producing fewer units lowers these costs, so the total variable cost falls. The per-unit variable cost tends to stay roughly constant within a relevant range, which is why the overall behavior is described as varying with volume. Fixed costs, by contrast, stay the same regardless of output, and some costs are mixed, having both fixed and variable components. So the statement that variable costs change with production volume best captures their behavior.