Certified Pennsylvania Evaluator Practice Exam

Which cost is part of the fixed expenses category?

1. Utilities

2. Insurance premiums

3. Employee salaries

4. Maintenance and repairs

The correct answer is: Insurance premiums

Insurance premiums are classified as fixed expenses because they do not vary with the level of business activity. Fixed expenses are costs that remain constant regardless of the business's volume of sales or production. These are predictable costs that businesses typically incur regularly, such as monthly or annually. In contrast, utilities can fluctuate based on usage; employee salaries can vary if the business has variable labor costs or seasonal workers; and maintenance and repairs can be unpredictable, with costs changing based on the need for services or equipment wear and tear. Therefore, while all the other options represent important business expenses, they do not fit the definition of fixed expenses as precisely as insurance premiums do. This makes insurance premiums a clear example of a fixed expense in the context of business financial management.