ACCA Management Accounting (F2) Certification Practice Exam

The correct answer is that a variable cost is directly proportional to the number of units produced. Variable costs change in total with the level of production; the more units manufactured, the higher the total variable cost. This is a fundamental principle in management accounting. For example, in a manufacturing setting, direct materials and direct labor costs are typically classified as variable costs. If a company produces 100 units, the costs associated with raw materials for those units will be a specific amount. If production increases to 200 units, the cost for raw materials will double, assuming the cost per unit remains constant. In contrast, fixed costs remain constant regardless of the production level, which means they do not change with changes in the number of units produced. Mixed costs contain both fixed and variable components, while step costs are fixed over a certain range of activity but may change in a step-like manner when production exceeds specific thresholds. Therefore, the correct classification of costs that change directly and proportionately with output is variable costs.