Question

Choose an example of a fixed expense and an example of a variable expense, and explain why they are classified that way.

Answer 1

A.)Entertainment

B.)Food

C.)Clothing

D.)Rent

Answer 2

Fixed costs are those that do not depend on the level of production of a company and whose only way to avoid them is to close the company. For example, the cost of renting the plant or machinery.
 Variable costs are those that depend on the level of production of the company. For example, the cost of raw material. In a company that produces juices, the bottles will be part of the cost of raw material, and the amount of bottles to use depends on the amount of juice to produce, if this amount increases the cost of raw material will also increase. On the other hand, the rental cost of the place where the juices are produced will be the same regardless of the amount of juices that are produced, for this reason it is considered a fixed cost.