Question

Larry's Lawn Care incurs significant gasoline costs. This cost would be classified as a variable cost if the total gasoline cost: Multiple Choice varies inversely with the number of hours the lawn equipment is operated. none of the above. is not affected by the number of hours the lawn equipment is operated. increases in direct proportion to the number of hours the lawn equipment is operated.

Answer 1

Answer:

Increases in direct proportion to the number of hours the lawn equipment is operated.

Explanation:

Variable costs refer to those costs which vary or change with the level of production output. Such costs rise as production level increases and fall with decrease in the production level.

Examples of variable costs would include direct labor cost which varies with the number of hours worked, or sales commission which varies w.r.t the volume of sales effected by a salesperson.

In the given case, the cost incurred on gasoline, which is used as fuel for lawn equipment, would be classified as a variable cost if, such cost increases when lawn equipment is operated for more hours or falls when the same equipment is operated for lesser number of hours.

Thus, such costs should increase in direct proportion to the number of hours the lawn equipment is operared, to be classified as a variable cost.