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Question
Write short notes on Variable Costs.
Short/Brief Note
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Solution
- Variable costs are those costs which vary in amount with changes in the level of output or activity.
- Such costs increase and decrease in the same proportion in which the level of output increases or decreases.
- Variable costs vary in total amount but remain constant per unit of production.
- 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).
- Thus, there is a linear relationship between the volume of production and total variable costs.
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Classification of Costs
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