Variable expenses are primarily differentiated from fixed expenses by what factor?

Variable expenses are primarily differentiated from fixed expenses based on production levels. This distinction arises from how variable expenses fluctuate in relation to the level of output or sales activity. Variable costs change directly with the quantity of goods or services produced; for example, the cost of raw materials or production supplies increases as more products are made. Conversely, fixed expenses, such as rent or salaries, remain constant regardless of production levels. This fundamental difference in behavior relative to production makes production levels the key factor in differentiating between variable and fixed expenses. Understanding this relationship is crucial for effective financial management and budgeting in a business context.