Which of the following statements is correct regarding your monthly rent payment?

• A. It is a capital expense because it is used to acquire assets.
• B. It is a discretionary expense because it is optional.
• C. It is a variable expense because it changes each month.
• D. It is a fixed expense because it remains the same each month.

Answer: (D)

Verified step by step guidance

1. Understand the definitions of the terms provided in the options: Capital expense, discretionary expense, variable expense, and fixed expense.
2. A capital expense refers to costs incurred to acquire or improve long-term assets, such as equipment or property. Monthly rent does not fall under this category because it is not used to acquire an asset.
3. A discretionary expense is an optional cost that can be avoided or reduced, such as entertainment or luxury items. Monthly rent is not optional, so it is not a discretionary expense.
4. A variable expense changes in amount from month to month, such as utility bills or groceries. Monthly rent typically remains constant, so it is not a variable expense.
5. A fixed expense is a cost that remains the same over a period of time, such as monthly rent. Since rent payments are consistent and predictable, they are classified as fixed expenses.