What does monitoring variable costs help management achieve?

Monitoring variable costs is crucial for management as it provides insights into how costs fluctuate with production levels and directly impact profitability. By keeping a close eye on these costs, management can make informed decisions about pricing strategies and adjust production levels accordingly to enhance profit margins.

For example, if variable costs increase due to higher raw material prices, management can assess whether to raise prices, find alternative suppliers, or reduce production to maintain profitability. This adaptability to variable costs allows businesses to optimize their operations, ensuring that they remain competitive in the market.

In contrast, while fixed costs and employee numbers are certainly important considerations, they do not change in direct relation to the volume of goods produced or sold, which makes monitoring variable costs more relevant to pricing and production decisions. Increasing financial liabilities does not correlate with the proactive management of variable costs but rather may arise from other financial strategies that are unrelated to cost monitoring.