Question

With reference to cost, on the basis of behaviour explain:

Variable Cost

Answer 1

Variable costs are those whose amounts vary with changes in output or activity. They increase or decrease in proportion to the volume of production.

Key features:

1. They vary total but are constant per unit of output.
2. The total variable cost and production volume have a linear relationship.
3. They are activity-based.
4. They are manageable in the short term.

Examples: Raw material costs, electricity and fuel use in production, direct salaries paid on a piece-rate basis, and equipment wear and tear.

For example, if the total variable cost is ₹25,000 at 5,000 units (₹5 per unit), it increases proportionally to ₹30,000 at 6,000 units. However, the per-unit cost remains the same.