Which costs increase and decrease with the activity of the enterprise?

Which costs increase and decrease with the activity of the enterprise?

• A. Fixed Costs
• B. Indirect Costs
• C. Variable Costs
• D. Overhead Costs

Answer: (C)

The correct answer is variable costs, as these costs are directly tied to the level of activity within the enterprise. When production or sales levels increase, variable costs rise because more resources are required, such as raw materials and labor directly associated with the production process. Conversely, when activity decreases, these costs also decline because fewer inputs are needed. In contrast, fixed costs remain constant regardless of the level of activity; they do not fluctuate with production levels. Indirect costs can be a blend of both fixed and variable components, making them less directly related to the activity level. Overhead costs typically encompass fixed costs and other ongoing expenses that do not directly change with production levels. Thus, it is the variable costs that are uniquely responsive to the fluctuations in activity, clearly establishing their significance in the context of enterprise operations.

The correct answer is variable costs, as these costs are directly tied to the level of activity within the enterprise. When production or sales levels increase, variable costs rise because more resources are required, such as raw materials and labor directly associated with the production process. Conversely, when activity decreases, these costs also decline because fewer inputs are needed.

In contrast, fixed costs remain constant regardless of the level of activity; they do not fluctuate with production levels. Indirect costs can be a blend of both fixed and variable components, making them less directly related to the activity level. Overhead costs typically encompass fixed costs and other ongoing expenses that do not directly change with production levels. Thus, it is the variable costs that are uniquely responsive to the fluctuations in activity, clearly establishing their significance in the context of enterprise operations.