What are costs that change directly with the amount of production?

Variable costs are those expenses that fluctuate in direct proportion to the level of production or output. This means that as more units of a product are manufactured, variable costs rise, and as production decreases, these costs decline. Examples of variable costs include raw materials, direct labor required for the production process, and certain utilities that may vary based on usage.

Understanding variable costs is crucial for businesses, as they help in price setting, budgeting, and analyzing profitability. Fixed costs, on the other hand, remain constant regardless of production levels, while overhead costs refer to indirect expenses necessary to operate a business but not tied directly to production. Direct costs include specific expenses that can be directly attributed to the production of goods or services but do not necessarily change with the level of output.