Which of the following is an example of a variable cost?
Answer options:
A.
Insurance
B.
Raw materials
C.
Rent
D.
Salaries
How to approach this question
Identify the definition of a variable cost: a cost that changes in proportion to how much a company produces or sells. Then, evaluate each option to see which one fits this definition.
Full Answer
B.Raw materials✓ Correct
In business, costs are categorized as either fixed or variable. Fixed costs do not change with the level of output (e.g., rent, insurance). Variable costs change directly with the level of output. Raw materials are a prime example; the more a company produces, the more raw materials it needs to purchase, and thus the higher the total variable cost.
Common mistakes
Confusing salaries and wages. While salaries are often fixed, wages paid on an hourly or per-unit basis can be a variable cost. However, 'raw materials' is the clearest example of a variable cost among the options.
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