Which type of cost changes in proportion to changes in the volume of activity?

• A. Sunk cost
• B. Opportunity cost
• C. Variable cost
• D. Fixed cost

Answer: (C)

Verified step by step guidance

1. Understand the definition of each cost type: Sunk cost is a cost that has already been incurred and cannot be recovered; it does not change with the level of activity.
2. Opportunity cost represents the value of the next best alternative foregone when making a decision; it is not directly tied to the volume of activity but to choices made.
3. Fixed cost remains constant regardless of the level of production or activity; it does not vary with changes in volume.
4. Variable cost changes directly in proportion to the level of production or activity; as volume increases or decreases, variable costs increase or decrease accordingly.
5. Therefore, identify the cost type that varies with the volume of activity, which is the variable cost.