Which costs are said to change in direct proportion to changes in sales volume?

Variable costs are expenses that fluctuate directly with changes in production levels or sales volume. When a company increases its production or sales, the costs associated with those added units—such as raw materials, labor directly involved in production, and shipping—also increase. Conversely, when sales decrease, these costs reduce correspondingly. This direct correlation ensures that as a business scales its operations up or down, variable costs will change in tandem, making it easier for businesses to predict and manage their expenses based on expected sales volumes.

In contrast, fixed costs remain constant regardless of sales activity. These include expenses like rent and salaries that do not change with production levels. Direct costs refer to expenses directly tied to a specific product, which may include both variable and fixed elements depending on the accounting methods used. Overhead costs encompass indirect expenses that support business operations but are not directly tied to production, such as utilities and administrative salaries, and do not fluctuate with sales volume either.