In accounting, what term refers to a cost that varies with the level of output produced?

The term that refers to a cost that varies with the level of output produced is known as a variable cost. Variable costs change directly in relation to the quantity of goods or services a business produces. For example, if a manufacturer produces more units, the costs associated with materials, labor, and other resources needed for production will increase correspondingly.

In contrast, fixed costs remain constant regardless of the level of output; they do not change with production volume. Indirect costs, also known as overhead costs, cannot be directly attributed to a specific product or service but are necessary for the operation of a business. Opportunity costs represent the potential benefits that are forfeited when choosing one alternative over another. Understanding these distinctions is essential in accounting and financial analysis, especially when making decisions about production and budgeting.