Certified Human Resource Professional (CHRP) Practice Exam

Which of the following is classified as a variable cost?

1. Wages

2. Rent

3. Property taxes

4. Liability insurance

The correct answer is: Wages

The concept of variable costs pertains to expenses that change in direct proportion to an organization's level of production or business activity. Among the options, wages can be classified as a variable cost because they often vary based on the amount of production or the number of hours worked. For instance, if a company needs to increase output, it might require additional workforce hours or hire temporary staff, which results in higher wage expenses. In contrast, rent, property taxes, and liability insurance typically represent fixed costs. These expenses remain constant regardless of the level of production or sales, meaning they do not fluctuate with business activity. Rent is usually a set fee based on a lease agreement, property taxes are assessed based on property value regardless of operations, and liability insurance premiums are generally fixed for the coverage period. Therefore, wages are correctly categorized as a variable cost in this context, as they will change based on the operational needs of the business.