Question

Sonia opened a yoga studio where she teaches classes and sells yoga clothing. Variable costs for Sonia's yoga studio include the cost of the
(i) tank tops.
(ii) wages paid to the other yoga instructors.
(iii) lease on the studio space.
(iv) insurance that the landlord requires Sonia to carry for the studio.

Answer 1

Answer:

tank tops, and to some extent, wages paid to the other yoga instructors

Explanation:

Variable costs are costs that change as the level of activity in a business or production set-up changes. They differ from fixed costs which remain constant irrespective of the change in the level of activity.

For Sonia's yoga studio, variable costs will change as the number of students taking the yoga classes and those buying yoga clothing change. Accordingly, the identified costs for Sonia will react as follows to the change in the level of activity (number of customers and students).

• The cost of tank tops: as customers buying yoga clothing increases, the cost spent on tank tops will necessarily increase.
• Wages paid to the other yoga instructors: as more students enroll for yoga classes, Sonia, may increase the number of students in each class to an extent. However, if the number of students continue to increase beyond the limit for each class, Sonia may need to increase the number of classes and employ more instructors (or increase the number of hours for the current instructors), thus leading to an increase in wages. Thus, wages, though fixed in the short term, becomes variable when activity increases significantly.
• Lease on the studio space: lease will remain fixed since the space occupied as the yoga studio is the same.
• Insurance on the studio: the insurance cost on the studio will equally remain fixed since it will be a percentage of the value of the studio.

Therefore, the cost of the tank tops and the wages paid to the other yoga instructors (to some extent) are variable costs.