Entrepreneurship and Small Business (ESB) V2 Practice Exam 2026 – Complete Test Prep

A fixed cost is an expense that does not change based on the level of goods or services produced by a business; it remains constant over a specific period regardless of business activity. Rent or lease payments for business premises exemplify this concept effectively because these costs remain the same each month, regardless of how much a business sells or produces. This makes it essential for business owners to account for fixed costs when planning budgets or setting prices.

In contrast, the other examples provided represent variable or fluctuating expenses. Salaries and wages for temporary staff can change based on staffing needs, making them more of a variable cost. Advertising expenses that vary monthly also fit a variable cost model as they can differ significantly from one month to the next based on marketing strategy or seasonal campaigns. Lastly, raw materials are typically considered variable costs because their expense fluctuates with levels of production; as more products are made, more materials are required.