Which of the following is an example of a variable cost?

• A. Utilities
• B. Salaries and Benefits
• C. Rent
• D. Advertising

Answer: (A)

Variable costs change as the level of activity changes. Utilities fit this pattern because as you produce more, you use more electricity, water, and other services, so the cost rises with output. There’s often a fixed base charge, but the variable portion correlates with production, making utilities a clear example of a variable cost. Salaries and benefits are typically fixed because staffing doesn’t automatically rise with short-term production. Rent is a fixed cost tied to the lease, and advertising is usually planned as a fixed budget (or at least not directly proportional to volume in the short run). So, utilities best illustrate a variable cost.