Which of the following statements about variable costs is true?

Variable costs are expenses that vary directly with the level of production or output. This means that as a company increases its production, the total variable costs will increase proportionally, reflecting the additional resources consumed or units produced. For example, if a company manufactures more goods, it will need more raw materials, labor hours, and possibly utilities related to that production, leading to an increase in variable costs.

The essence of variable costs is that they are directly linked to the volume of production; therefore, they can provide insights into how changes in production levels affect overall expenses. This characteristic distinguishes variable costs from fixed costs, which remain constant regardless of output levels, making the statement about them changing in direct proportion to the level of production the accurate one.

In terms of financial planning, while variable costs do play a role, they don’t solely define long-term strategies — fixed costs also significantly impact budget forecasts and financial outcomes. Thus, the notion that they only pertain to fixed production processes is misleading since variable costs are inherently tied to production activity itself and should not be confused with fixed costs.