Florida General Contractor Practice Exam

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In financial terms, fixed expenses are best described as?

Costs that fluctuate based on sales
Constant costs that do not change with production levels
Variable costs associated with specific projects
Expenses that are incurred only when revenue is generated

The correct answer is: Constant costs that do not change with production levels

Fixed expenses are best described as constant costs that do not change with production levels. These types of expenses remain stable regardless of the volume of goods or services a business produces. Common examples include rent, salaries, and insurance premiums. Unlike variable costs, which fluctuate based on sales or production volume, fixed expenses must be paid regardless of business activity, allowing for more straightforward budgeting and financial planning. This characteristic is crucial for businesses as it helps them understand their baseline costs and forecast profitability over time, irrespective of sales fluctuations.