Which statement is true about variable costs?

Variable costs are expenses that change in direct proportion to the level of production or service activity. This means that as production increases, the total variable costs will also rise, and conversely, if production decreases, the total variable costs will fall. Examples of variable costs include direct materials, direct labor, and certain overhead costs that vary with production volume.

The rationale for selecting the statement that variable costs fluctuate directly with changes in production levels is grounded in the fundamental definition of variable costs. They are inherently linked to the number of units produced or services rendered. In managerial accounting, recognizing this relationship is crucial for budgeting, forecasting, and decision-making processes, particularly when assessing how changes in production volume will affect overall costs and profits. This understanding assists businesses in carrying out break-even analysis and in determining pricing strategies based on cost behavior.

In contrast, other statements do not accurately reflect the nature of variable costs. For instance, stating that they remain constant regardless of production volume directly contradicts the definition of variable costs. The assertion that they are the highest costs in service industries does not universally apply, as fixed costs can also represent a significant portion of total costs, depending on the particular industry and business model in question. Lastly, the claim that they do not impact the