Question

Which of the following is a variable cost for a firm?

• A. Interest on loan
• B. Monthly rent
• C. Insurance premium
• D. Wages to employees

Hint:

Variable costs include expenses like wages for hourly workers, raw materials, and utilities that increase with higher production.

Answer 1

The Correct Option is D

Step 1: Understanding Variable Costs:
Variable costs are costs that change with the level of production or business activity. These costs increase or decrease as the company produces more or fewer units of goods or services.
Step 2: Analyzing the Options:
- Interest on loan: This is a fixed cost because the payment is a set amount and does not change with the level of production.
- Monthly rent: Rent is typically a fixed cost, as the same amount is paid each month regardless of the business activity.
- Insurance premium: This is also a fixed cost, as the insurance amount is set and does not fluctuate with production levels.
- Wages to employees: Wages, particularly to hourly workers, are considered a variable cost because they change with the amount of work done and the level of production.
Step 3: Conclusion:
Wages to employees are the variable cost in this case, making option (D) the correct answer.