Future Business Leaders of America (FBLA) Agribusiness Practice Test

What is an example of a variable cost for a farmer?

1. Land depreciation expenses

2. Insurance premiums for farming equipment

3. Feed and veterinary inputs for livestock

4. Long-term loans taken out for farm expansion

The correct answer is: Feed and veterinary inputs for livestock

Variable costs are expenses that change in direct proportion to the level of output or production. In the context of farming, variable costs can fluctuate depending on factors such as the number of animals raised or the volume of crops produced. Feed and veterinary inputs for livestock qualify as a variable cost because these expenses increase as the farmer raises more livestock. If a farmer has more animals, they will need to purchase more feed and potentially incur additional costs for veterinary care, aligning these costs directly with production levels. In contrast, land depreciation expenses, insurance premiums, and long-term loans represent fixed costs. These costs remain constant regardless of how much agricultural production occurs. For example, depreciation and insurance costs are typically calculated annually and do not change with the volume of output, while loan payments are predictable and fixed over the loan period, irrespective of the farmer's current output levels. Therefore, feed and veterinary inputs clearly exemplify a variable cost due to their direct correlation with livestock management and production needs.