Future Business Leaders of America (FBLA) Agribusiness Practice Test

What type of costs change as production changes within a relevant range?

1. Fixed costs

2. Variable costs

3. Direct costs

4. Overhead costs

The correct answer is: Variable costs

Variable costs are expenses that fluctuate in direct proportion to changes in production levels within a relevant range. This means that as production increases or decreases, the total variable costs will rise or fall accordingly. For example, if a company produces more products, it will incur higher costs for raw materials, labor, and utilities directly associated with that production. Conversely, if production decreases, those costs will also decline. In contrast, fixed costs remain constant regardless of production levels. These costs, such as rent or salaries, do not change as output changes within the relevant range. Direct costs refer to expenses that can be directly traced to a specific product or service, while overhead costs encompass both fixed and variable costs associated with running a business. Therefore, the nature of variable costs is specifically tied to the amount of production, making them the correct choice in this context.