The correct answer is A. Cost of raw material.
Variable costs are costs that change in proportion to the changes in the level of output. They are also known as direct costs because they can be directly traced to the units of output. Examples of variable costs include the cost of raw materials, the cost of direct labor, and the cost of variable overhead.
Fixed costs are costs that do not change in proportion to the changes in the level of output. They are also known as indirect costs because they cannot be directly traced to the units of output. Examples of fixed costs include the cost of rent, the cost of depreciation, and the cost of insurance.
Interest payment on past borrowing is a fixed cost because it does not change in proportion to the changes in the level of output. The payment of rent on buildings is also a fixed cost because it does not change in proportion to the changes in the level of output.
The cost of raw material is a variable cost because it changes in proportion to the changes in the level of output. When the level of output increases, the cost of raw material also increases. When the level of output decreases, the cost of raw material also decreases.