Which of the following is an example of a fixed expense?

• A. Sales commissions
• B. Utility bills based on usage
• C. Monthly office rent
• D. Raw materials cost

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of fixed expenses. Fixed expenses are costs that remain constant over a specific period, regardless of the level of business activity or production. These expenses do not fluctuate with changes in sales or usage.
2. Step 2: Analyze each option provided in the problem. Sales commissions are variable expenses because they depend on the volume of sales. Utility bills based on usage are also variable expenses since they change based on consumption.
3. Step 3: Consider the nature of monthly office rent. Monthly office rent is a fixed expense because it is a predetermined amount that does not change based on business activity or production levels.
4. Step 4: Evaluate raw materials cost. Raw materials cost is a variable expense because it depends on the quantity of goods produced or sold.
5. Step 5: Conclude that the correct example of a fixed expense from the options provided is monthly office rent, as it remains constant regardless of business activity.