Agricultural Engineering 2025 – 400 Free Practice Questions to Pass the Exam

In the context of operating a palay buy-and-sell station, a variable cost is directly associated with production levels or sales volume. The cost of buying palay represents a variable cost because it fluctuates based on the amount of palay purchased, which can change depending on market demand, available inventory, and business operations. When sales increase, the station would need to buy more palay to meet that demand, thus increasing the total cost in proportion to the volume of palay bought.

Contrastingly, payments for loans and salaries are more fixed in nature. Loan payments generally remain constant over the repayment period, irrespective of sales levels. Similarly, salaries and overhead costs like rent or utilities do not typically vary directly with the volume of business conducted. Training expenses, while they could vary to some degree depending on how much training is needed, are often considered more fixed as they do not change significantly with daily operational levels.

This distinction illustrates why the cost of buying palay is considered the variable cost in this scenario.