What are variable costs directly related to?

Variable costs are directly related to the volume of services delivered because they fluctuate in direct relation to the level of activity or number of services provided. This means that as the volume of testing or procedures increases, variable costs also rise, and conversely, they decrease when the volume falls. Examples of variable costs in a laboratory setting may include costs for reagents, supplies needed for each test, and salaries of hourly staff who may be needed based on volume.

On the other hand, fixed costs remain constant regardless of the level of services delivered, making them independent of volume. Administrative overheads typically include fixed costs as they encompass costs that do not vary with production or service levels. Similarly, long-term leases represent fixed costs since the payments do not change with the level of services or product volume provided. Thus, focusing on the relationship of variable costs to service volume highlights their nature of variability with production output.