When Cost Relationships Are Linear, Total Variable Costs Will Vary

question 5

Multiple Choice

When cost relationships are linear, total variable costs will vary in proportion to changes in:

• A)Direct labor hours.
• B)Total material cost.
• C)Total overhead cost.
• D)Volume of production.
• E)Machine hours.

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Definitions:

Variable Cost

Expenses that change in proportion to the activity or production level of a business; for example, costs for raw materials that increase as more goods are produced.

Rent

A payment made periodically by a tenant to a landlord in exchange for the use of land, a building, or another property.

Fixed Costs

Costs that do not change with the level of output in the short term, such as rent, salaries, and insurance.

Variable Costs

Costs that vary directly with the level of production, such as materials and labor.