A typical variable cost example is:

A typical variable cost example is:

• A. Mortgage payment
• B. Utilities
• C. Property taxes
• D. Insurance

Answer: (B)

Costs that vary with the level of activity tend to increase when usage or production goes up and decrease when it goes down. Utilities fit this pattern because electricity, water, and heating bills change with how much the facility is used—the more occupancy or production, the higher the bills, and vice versa. Mortgage payments are typically fixed over the term of the loan, set monthly regardless of activity. Property taxes and insurance are also generally fixed for a given period, not tied to how much you produce or use in the moment. So utilities are the best example of a variable cost, as they respond directly to the level of activity.

Costs that vary with the level of activity tend to increase when usage or production goes up and decrease when it goes down. Utilities fit this pattern because electricity, water, and heating bills change with how much the facility is used—the more occupancy or production, the higher the bills, and vice versa. Mortgage payments are typically fixed over the term of the loan, set monthly regardless of activity. Property taxes and insurance are also generally fixed for a given period, not tied to how much you produce or use in the moment. So utilities are the best example of a variable cost, as they respond directly to the level of activity.