DECA Marketing Cluster Practice Exam

Fixed costs in a business are:

1. Costs that change with production levels

2. Expenses that remain constant regardless of production

3. Variable costs associated with marketing

4. Only related to salaries and wages

The correct answer is: Expenses that remain constant regardless of production

Fixed costs in a business are defined as expenses that remain constant regardless of the level of production or sales. This means that, unlike variable costs, fixed costs do not fluctuate with changes in the volume of goods or services produced. Examples of fixed costs include rent, insurance, and salaries of permanent staff. Understanding fixed costs is crucial for businesses as they affect overall profitability; since these costs must be paid regardless of production levels, they need to be carefully managed and factored into pricing strategies to ensure the company remains financially viable. Other options are not correct because they describe characteristics that pertain to different types of costs. For instance, costs that change with production levels are classified as variable costs, which directly correlate to output. Additionally, variable costs associated with marketing and limiting fixed costs solely to salaries and wages don't capture the broader scope of fixed expenses a business incurs.