Some things, such as the cost of heating or cooling following a sudden change in the weather, can change from month to month for businesses and are referred to as what kind of expense?
A. Base expense
B. Fixed expense
C. Variable expense
D. Static expense
C. Variable expense
The correct answer is C. Variable expense.
To determine the kind of expense that can change from month to month for businesses following a sudden change in weather, such as the cost of heating or cooling, you'll need to understand a few key concepts.
There are typically three main types of expenses for businesses: base expenses, fixed expenses, and variable expenses.
Base expenses are the essential costs that a business incurs regardless of any changes in their operations or external factors. These expenses remain relatively constant over time and are necessary for the basic functioning of the business. Examples of base expenses include rent or mortgage payments, insurance, and certain utilities that remain consistent regardless of weather changes.
Fixed expenses, on the other hand, are costs that remain the same from month to month, regardless of the volume of business activity or any changes in the weather. These expenses do not vary based on business fluctuations. Examples of fixed expenses include salaries, lease payments for equipment, or monthly subscriptions.
Variable expenses, which seem to best fit the scenario described in the question, are costs that can change from month to month based on various factors, such as changes in business operations or external circumstances like weather. These expenses are directly influenced by the volume of business activity or the impact of specific events. Examples of variable expenses include electricity bills that fluctuate based on heating or cooling needs caused by weather changes, raw material costs that vary based on demand, and sales-related expenses such as commissions or marketing costs.
Considering the information provided, the correct answer would be:
C. Variable expense