Question

Which of the following would definitely be an example of a varoable cost for Bikes Unlimited (a company thst produces and sells moutain bikes)?

a. Rent on the production facility

b. Depreciation of productiom equipment

c. The utilities cost (electricity)

d. The cost of pedals bought from a supplier

Answer 1

Variable Costs are those costs which vary with level of production. They are not supposed to remain constant. Their basic nature is to change either due to volume level or various other factors but they tend to change. They may be lower today but higher in future and vice versa also.

Now let us discuss the various options given in above questions and decide which is avariable costs for bike unlimited

1. Rent on the Production Facility

It is a fixed costs as it has to be incurred once the production facility has been taken on rent whether one unit is prodcued or thousands produced so they do not fall in the category of variable costs.

2. Depreciation bon Production Equipment

Depreciation is having a nature of fixed costs as thus is becuase of the decrease in the value of the asset over a period of time due to wear tear, obsolescence etc. It is not a costs which vary with the increase or decrease in the level of production.

3. The Utilities Costs for Electricity

They are a perfect example of mixed costs as they tend to be fixed for a certain limit and afetr that it changes as per changes in the level of usage s out is not the variable costs for the company.

4. The cost of pedals bought from a supplier.

A perfect example of variable costs. It usually varies with the volume being ordered, various discounts provided or either with the fluctuations in their cost prices. This is the cost which will vary according to the requirements of the company. when there will be high demand there will be more costs to be incurred and vice versa also possible so it classifies as variable costs.

Option D is the Correct Answer to the question.