Which of the following best describes variable costs?

Variable costs are expenses that change in direct proportion to the level of production or output. This means that as production increases, variable costs increase, and conversely, when production decreases, variable costs decline. This characteristic allows businesses to predict and control costs more effectively based on their production levels.

To understand this further, consider how variable costs can include items like raw materials, direct labor costs associated with manufacturing, and other expenses that fluctuate as the volume of goods produced changes. For instance, if a factory produces more widgets, it requires more materials and labor, which raises the variable costs.

The other options do not accurately define variable costs. For instance, costs that remain constant regardless of production levels are categorized as fixed costs, while variable costs are inherently not strictly tied to administrative expenses and can exceed fixed costs depending on the scale of production. Understanding the distinction between variable and fixed costs is essential for effective financial planning and management in any business.