Which is the correct example of a variable cost?
Answer and explanation
Correct answer: Raw material used for each product
A variable cost changes with the level of production or sales. If an enterprise makes more units, it normally needs more raw material, so total material cost rises; if production falls, the total falls. Rent, an annual licence fee, and the purchase of equipment are generally fixed or periodic capital costs rather than costs that vary directly with each unit.
Frequently asked questions
What is the correct answer to this question?
Raw material used for each product
Why is this the correct answer?
A variable cost changes with the level of production or sales. If an enterprise makes more units, it normally needs more raw material, so total material cost rises; if production falls, the total falls. Rent, an annual licence fee, and the purchase of equipment are generally fixed or periodic capital costs rather than costs that vary directly with each unit.
Which subject and chapter does this question cover?
This is a Class 11 Business Studies question. Chapter: Sources of Business Finance. Topic: Concept, nature and importance of business finance.
