Define variable costs.

Variable costs are defined as expenses that increase as production increases. This means that these costs fluctuate in relation to the level of output within a company. For example, in a manufacturing context, variable costs may include materials and labor that are directly proportional to the quantity of goods produced. As production ramps up, more materials are needed, and often more labor hours are required as well, thereby increasing total variable costs.

Understanding variable costs is crucial for businesses as they impact pricing, budgeting, and overall profitability. Managers analyze variable costs to make informed decisions about production levels because these costs directly influence the firm's breakeven point and profit margins.

In contrast, the other options describe different types of costs. Costs that remain constant regardless of production refer to fixed costs, which do not change with the level of output. Fixed costs are incurred every period and do not vary with production volume, such as rent or salaries of permanent staff. Costs that decrease as production rises do not typically apply in financial contexts, as increased production usually causes variable costs to rise, not fall.