What is the characteristic of variable costs?

Variable costs are defined by their direct relationship to production levels. As the volume of production increases, the total variable costs also increase in direct proportion. This means that if a company produces more goods or services, it will incur higher variable costs, such as materials, labor, and other input costs that fluctuate with production activity.

For instance, if a manufacturing plant produces more units, it will require more raw materials and possibly more labor hours, leading to higher overall expenses that correlate with the increased activity level. Therefore, choice B accurately captures the essence of variable costs by stating that they vary directly in proportion to volume.

In contrast, other options describe different types of cost behaviors. The option that suggests they remain fixed regardless of production levels describes fixed costs, which do not change with the volume of production. The option mentioning mixed behavior involves costs that contain both fixed and variable components, commonly known as semi-variable costs. Lastly, the idea that costs only change at certain thresholds refers to step costs, which remains constant within certain ranges of production before increasing at specific levels. Each of these other definitions reflects characteristics of different types of costs, highlighting why B is the appropriate choice for the definition of variable costs.