Which of the following illustrates the difference between variable expenses and fixed expenses?

The correct choice highlights the fundamental distinction between variable expenses and fixed expenses in a business context. Variable expenses are directly related to the level of activity or production; they fluctuate based on actual usage or consumption. For example, costs such as raw materials, utilities, and direct labor can increase or decrease depending on the volume of goods produced or services provided.

On the other hand, fixed expenses remain constant regardless of the level of activity within a certain range. Examples of fixed expenses include rent, salaries, and equipment lease payments, which do not change with the volume of production or service usage. This consistency means that fixed expenses are predictable for budgeting and financial planning purposes.

The other statements do not accurately capture this relationship. The first choice incorrectly reverses the definitions of variable and fixed expenses. The second option suggests that variable expenses are consistent annually, which is inaccurate as they vary with activities. The last option incorrectly categorizes variable expenses as being exclusive to service industries, which is not true since variable expenses can apply across various industries. Thus, the correct choice effectively encapsulates the core characteristics that differentiate variable and fixed expenses.