Certified Pennsylvania Evaluator Practice Exam

Which term defines the expenses that do not change from month to month?

1. Variable expenses

2. Fixed expenses

3. Operating expenses

4. Depreciation costs

The correct answer is: Fixed expenses

The correct answer identifies fixed expenses as those costs that remain consistent each month, regardless of any changes in the level of activity or usage. This means that fixed expenses are predictable and can include items such as rent, salaries, or insurance payments, which do not fluctuate with the volume of services or products offered. Understanding fixed expenses is crucial for budgeting and financial planning because they represent the ongoing costs that a business must cover irrespective of its revenue or production levels. By having a firm grasp of these expenses, businesses can ensure they have the necessary cash flow to cover these obligations even during slower months. Other expense types, like variable expenses, change based on activity levels, while operating expenses encompass both fixed and variable costs associated with running a business. Depreciation costs specifically refer to the allocation of the cost of tangible assets over their useful lives, which also does not define expense variability in the context of monthly changes.