Which of the following statements is true regarding variable cost?

Which of the following statements is true regarding variable cost?

a. Variable cost increases on a per unit basis as the number of units produced increases.

b. Variable cost remains constant on a per unit basis as the number of units produced increases.

c. Variable cost remains the same in total as production increases.

d. Variable cost decreases on a per unit basis as the number of units produced increases.

Answer: b. Variable cost remains constant on a per unit basis as the number of units produced increases.

The above statement is valid concerning variable cost; Variable cost does not change on a per-unit basis as the number of units being produced increases. Frequently, variable costs are costs of production that change with the degrees of production or output. Some of these are the raw materials and direct labour as well as the utilities that are consumed in the production process.

So, as the number of units produced rises, the total of variable cost will also rise in a similar proportional fashion. At the same time, the variable cost per unit will not alter because more units will require the same amount of variable inputs per each as the previous units. For instance, if it costs $5 of material and labour to make one unit it will cost $10 to make two units but the variable cost per unit remains $5. This constant per unit variable cost forms a basis for many economic models and is generally useful for cost analysis and establishing prices in manufacturing and production fields.