Variable costs are best described as:

Variable costs are best described as costs that fluctuate based on production levels. This is because variable costs change in direct proportion to the level of output or sales. For example, the cost of raw materials needed to produce goods increases as more units are produced, and decreases when production is scaled back. This relationship means that as a business increases its production, its variable costs will rise, reflecting the higher volume of goods being created.

Understanding variable costs is essential for businesses as they are integral to pricing, budgeting, and financial forecasting. They play a significant role in determining the break-even point, where total revenues equal total costs, and knowing how these costs behave helps businesses make strategic decisions about scaling operations up or down in response to market demand.