How do variable costs behave with changes in production volume?

Variable costs are directly associated with the level of production, meaning that as the volume of production increases or decreases, the total variable costs will change in direct proportion. This behavior stems from the nature of variable costs, which include expenses such as raw materials and labor that are incurred only when products are produced.

For instance, if a company produces more units, it needs more materials and possibly more labor hours, leading to an increase in total variable costs. Conversely, if production is reduced, the costs decrease accordingly because fewer resources are consumed. This relationship allows businesses to effectively manage and predict their costs based on production volume, making it crucial for decision-making in budgeting and forecasting.

The other options do not accurately reflect the behavior of variable costs. If costs remained unchanged or were fixed regardless of production (which is indicative of fixed costs), it would not portray the flexible nature of variable costs that adapt with production changes. Thus, the correct understanding of variable costs is that they increase or decrease in proportion to changes in production volume.