Which is an example of a variable cost?
Question
Which is an example of a variable cost?
Solution
A variable cost is a cost that changes in relation to variations in an activity. In a business, the variable cost increases as the volume of output increases and decreases as the volume of output decreases.
For example, in a manufacturing business, the cost of raw materials is a variable cost. This is because the more units of a product you make, the more raw materials you will need. Therefore, if you increase production, the cost of raw materials will increase. Conversely, if you decrease production, the cost of raw materials will decrease.
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