Future Business Leaders of America (FBLA) Agribusiness Practice Test

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What is an example of a fixed cost?

Materials used in production
Rent for business premises
Salaries based on hours worked
Utilities based on consumption

The correct answer is: Rent for business premises

A fixed cost refers to an expense that does not change with the level of output or sales. It remains constant over a specific period, regardless of how much a business produces or sells. Rent for business premises is a prime example of a fixed cost because it must be paid regularly, often on a monthly or yearly basis, regardless of the company's operational activity. Whether the business produces a large or small amount, or even if it generates no revenue at all, the rent obligation persists. In contrast, materials used in production and salaries based on hours worked vary directly with the level of production: if more products are made, more materials are used, and more hours of labor may be required. Utilities based on consumption also fluctuate based on usage levels, meaning they can increase or decrease depending on how much energy or water is consumed. Thus, the consistency of rent payment makes it distinctly a fixed cost.