Which of the following best describes variable costs?

Variable costs are defined as costs that change in total with the level of activity or production. This means that as a company increases its production output, the total variable costs will rise, and conversely, if production decreases, the total variable costs will fall. Examples of variable costs include raw materials, direct labor costs (when paid per unit produced), and shipping costs. These costs are directly tied to the volume of goods produced or services rendered, making them an essential component of cost management, particularly in decision-making scenarios related to pricing, budgeting, and financial forecasting.

In contrast, the other descriptions provided do not align with the definition of variable costs. Costs that remain unchanged when production levels fluctuate pertain to fixed costs, which stay constant regardless of production volume. Costs associated exclusively with fixed assets typically refer to depreciation or rent, which are not variable in nature. Lastly, costs that are never incurred during production do not fit the variable cost definition as they suggest a lack of all costs related to production, which is not applicable in a variable context. Thus, identifying variable costs accurately helps businesses manage their operations and adjust strategies based on production levels.