Costs which do vary according to output. These costs are directly related to making the product?

• A. Variable Costs
• B. Fixed Costs
• C. Total Costs
• D. Re-Order Level

Answer: (A)

Costs that vary according to output are variable costs. These are the parts of the cost of making the product that change in total as production changes, such as raw materials and direct labour. If you produce more units, you use more materials and possibly more labour, so the total variable cost rises. They are directly related to making the product because their amount depends on how much is produced. Fixed costs stay the same regardless of output in the short term, total costs are the sum of fixed and variable costs, and re-order level is a stock-management threshold, not a cost. So the costs that change with production are variable costs.