Question

Indicate which of the following is a variable cost?
(a) Payment of rent on building
(b) Cost of Machinery
(c) Interest payment on Loan taken from bank
(d) Cost of raw material

Answer 1

Cost of raw material is your answer because it is a variable cost.

Answer 2

Answer:

Correct option is: (d) Cost of raw material

Cost of raw material is a variable cost.

Explanation:

Variable cost is a manufacturing expense that rises or falls in response to changes in a company's manufacturing activity.

Raw materials used as product components are considered variable costs because this type of expense typically rises or falls in response to the number of units produced. Variable and fixed production costs are incurred by businesses.

• The amount of output produced determines variable costs. Labor, commissions, and raw materials are examples of variable costs.

• Regardless of production output, fixed costs remain constant. Because this type of expense typically fluctuates based on the number of units produced.

• Raw materials used as components of a product are considered variable costs. Variable costs are subject to change depending on the quantity of output.