Question

Write short notes on Variable Costs.

Answer 1

1. Variable costs are those costs which vary in amount with changes in the level of output or activity.
2. Such costs increase and decrease in the same proportion in which the level of output increases or decreases.
3. Variable costs vary in total amount but remain constant per unit of production.
4. For example, when the level of output increases from 5,000 units to 6,000 units, the amount of variable costs increases from ₹ 25,000 to ₹ 30,000. In this case, the variable cost per unit remains unchanged at ₹ 5 (25,000 + 5,000 and 30,000 + 6,000).
5. Thus, there is a linear relationship between the volume of production and total variable costs.