Which of the following would be considered a variable expense?

Which of the following would be considered a variable expense?

(a) Rent

(b) Raw materials

(c) Interest

(d) Insurance.

Answer. (b) Raw materials

According to their behaviour in the context of production volume, costs are classified as either fixed or variable in the field of accounting. Raw materials are one of the most typical examples of a variable cost because its value is closely linked to the level of production. This expense also increases with the production of even a single extra good, because as a company needs more raw materials to give rise to more goods, the raw material cost increases as well. On the hand, if production is low, less material is required and thus the cost, is also low. However, rents (a), interests (c), and insurance (d) are normally stated to be fixed costs. They are not very sensitive to production volumes as they are determined more by contractual or other similar arrangements in the short-term.