When opening a business, an owner will have some costs that increase and decrease as production changes. For example if Birdhouse, Inc. has an increase in orders for birdhouses, their need for wood, glues, paint, and labor will also increase. What type of cost does this example describe?

Question

When opening a business, an owner will have some costs that increase and decrease as production changes. For example if Birdhouse, Inc. has an increase in orders for birdhouses, their need for wood, glues, paint, and labor will also increase. What type of cost does this example describe?
A. fixed
B. start-up 
C. variable 
D. debt

GPT-4o mini · Answer

The example you provided describes **C. variable costs**. Variable costs are expenses that change in direct proportion to the level of production or business activity. As Birdhouse, Inc. increases its production of birdhouses, costs for materials like wood, glue, paint, and labor will increase accordingly.