What characterizes variable costs?

Variable costs are defined by their direct relationship with the volume of activity or production. This means that as the level of activity increases, variable costs also increase, and conversely, as the level of activity decreases, variable costs will decrease. For example, in a medical practice, costs associated with supplies or hourly wages for part-time staff can fluctuate based on the number of patients seen or procedures performed. This characteristic allows practices to manage their expenses relative to patient volume effectively.

The other characteristics mentioned in the options contrast with the nature of variable costs. Fixed costs, for example, are expenses that do not change with the level of activity, which is the opposite of what defines variable costs. Additionally, variable costs are not inherently higher than fixed costs; they can vary in magnitude depending on the specific circumstances of a practice. Similarly, while certain costs can be fixed over a long term, variable costs are differentiated by their tendency to fluctuate based on operational activity.