CSLB Contractor's Law & Business Practice Exam

Which of the following is considered a fixed expense?

1. Office rent

2. Wages

3. Office supplies

4. Materials

The correct answer is: Office rent

Office rent is considered a fixed expense because it represents a consistent, recurring cost that does not fluctuate with the level of business activity. This type of expense is incurred regardless of how much work a contractor does, making it a predictable and stable financial commitment. Fixed expenses typically include payments that remain the same over a specified period, such as lease payments for office space or equipment. In contrast, wages can vary based on hours worked or employee performance, thus not qualifying as a fixed expense. Office supplies are subject to change in quantity and cost based on usage and purchasing decisions, and materials costs can fluctuate significantly depending on the projects undertaken and market prices. Therefore, office rent stands out as a reliable fixed expense essential for budgeting and financial planning in a contracting business.