Certified Pennsylvania Evaluator Practice Exam

What are fixed expenses?

1. Expenses that vary with occupancy rates

2. Expenses that remain constant each month

3. Expenses that fluctuate seasonally

4. Expenses related to leasing contracts

The correct answer is: Expenses that remain constant each month

Fixed expenses are defined as costs that remain constant each month regardless of changes in business activity levels or occupancy rates. This means that, irrespective of how much revenue a business generates or how many units it sells, these expenses do not fluctuate. Common examples include rent, salaries, insurance, and fixed utility costs. Understanding fixed expenses is crucial for budgeting and financial planning, as they provide a baseline of the minimum costs that must be covered each month. This stability allows businesses to better predict their profitability over time, especially when analyzing their variable expenses, which can change based on operational factors. The constancy of fixed expenses also aids businesses in making long-term financial commitments and strategic plans.