Which of the following best defines variable costs?

Variable costs are defined as costs that change in direct proportion to the volume of production or output. This means that as more units are produced, the total variable costs will increase, and conversely, if production decreases, these costs will decrease as well. Common examples of variable costs include raw materials, direct labor associated with production, and utilities that fluctuate with the level of operation.

The other definitions outlined in the answer choices refer to fixed costs or other financial concepts that do not align with the nature of variable costs. Fixed costs, for example, remain constant regardless of the level of production, while long-term investment decisions pertain to capital expenditures and strategic financial planning rather than direct production costs. Therefore, understanding that variable costs fluctuate based on production output is crucial for effective budgeting and financial analysis in accounting.