What is an example of a variable cost?

A variable cost is defined as a cost that varies directly with the level of production. This means that as production increases or decreases, the total variable cost will also increase or decrease proportionally. For instance, if a company produces more units, it will require more raw materials; thus, the cost of those materials increases with the number of items produced. Conversely, if production slows down, the variable costs decrease accordingly since fewer materials are needed.

In contrast, the other options refer to fixed costs or startup costs, which do not fluctuate with production levels. Fixed costs remain constant regardless of how much is produced, while startup costs are associated with establishing a business rather than ongoing operational expenses. This distinction is essential for understanding how businesses manage and predict their costs based on production activity.