Entrepreneurship and Small Business (ESB) Certification Practice Exam

Is a fixed cost characterized by varying amounts each time it is incurred?

1. True

2. False

3. Only in certain industries

4. Only for variable products

The correct answer is: False

A fixed cost is defined as an expense that does not change with the quantity of goods or services produced by a business within a certain range of activity. This means that it remains constant over a specific period, regardless of whether production levels rise or fall. Common examples include rent, salaries of permanent staff, and equipment leases. Given this understanding, stating that a fixed cost is characterized by varying amounts each time it is incurred is incorrect. Fixed costs, by nature, are predictable and do not fluctuate with operational levels, which sets them apart from variable costs, which do change based on production volume. The answer is accurate because it highlights that fixed costs maintain a stable value over time, contrary to the notion of variability at each occurrence.