What characteristic defines variable costs?

Variable costs are specifically defined by their behavior in relation to production levels. They fluctuate directly with changes in production volume, meaning that as production increases, the total variable costs will increase correspondingly, and conversely, if production decreases, the total variable costs will also decrease. This characteristic is essential because it allows businesses to understand how costs will change as they scale production up or down.

For instance, materials and labor costs that increase with additional units produced are classic examples of variable costs. This understanding is crucial for budgeting and financial forecasting, as variable costs play a significant role in determining a company's profitability depending on production levels.

The other characteristics provided in the options do not accurately represent variable costs, as they either describe fixed costs (which remain constant regardless of output) or inaccurately limit the context of costs to administrative expenses. variable costs can arise from various operational areas, including production, sales, and logistics.