Which of the following is an example of a variable cost?

A variable cost is an expense that changes in proportion to the level of production or sales. Raw materials used in production are a prime example of this because the amount spent on these materials varies directly with the quantity of goods produced. For instance, if a company produces more units, it will require more raw materials, leading to higher costs. Conversely, if production decreases, the costs for raw materials will also decline.

In contrast, fixed costs, such as rent for factory space or salaries of permanent staff, remain constant regardless of the production level. Depreciation of equipment is another example of a fixed cost, as it does not fluctuate with the amount of production. Understanding these distinctions helps in analyzing a company's cost structure and making informed operational decisions.