Fill in the Blank QuestionFill in the blank question.A cost changes in proportion to changes in volume of activity.

The blank can be filled with "variable" to complete the statement.

Completed Statement

"A variable cost changes in proportion to changes in volume of activity."

Explanation

Variable costs are those expenses that fluctuate in direct correlation with the level of production or business activity. For instance, in a manufacturing setting, costs such as raw materials, direct labor, and certain utilities increase as production volume increases because more materials and labor are required to produce more goods. Conversely, when production decreases, these costs also reduce. Understanding variable costs is crucial for businesses in budgeting and pricing strategies, as they help determine the break-even point and assess how changes in production levels impact overall profitability. This concept is fundamental in cost accounting and management accounting, aiding firms in effective financial planning and control.