DECA Business Management and Administration Exam Practice – Complete Prep Guide

Variable costs are defined as costs that change in direct proportion to the level of production or sales. This means that when production increases, variable costs will typically rise, and when production decreases, these costs will decline. Examples of variable costs include raw materials, direct labor costs, and shipping expenses, all of which fluctuate based on output levels. Understanding variable costs is crucial for businesses as it impacts pricing, budgeting, and financial forecasting.

In contrast, the other options describe different types of costs. The first option refers to fixed costs, which do not change with production levels, while the third option explicitly outlines fixed costs over a financial period. The last option describes a mixture of fixed and variable costs rather than variable costs alone, as wages can include both fixed salaries and variable hourly wages depending on working hours. This distinction highlights the nature of variable costs as being directly tied to production activity, making the correct choice clear.