DECA+ Business Management and Administration Practice Exam 2025 - Free Business Management Practice Questions and Study Guide

Rent is considered a fixed cost because it generally remains constant over a period of time, regardless of the company's level of production or sales. This means that businesses typically have a set rent amount they must pay each month or year that does not fluctuate based on how much they sell or produce. Fixed costs are crucial for businesses to understand as they are expenses that need to be covered even if the business is generating no revenue.

In contrast, utilities can vary significantly based on usage, making them a variable cost. Raw materials are also variable costs, as the expense depends on the amount of production. Commissions are performance-based payments linked to sales, which can also vary significantly, hence classified as variable costs. Understanding the distinction between fixed and variable costs helps businesses manage their expenses effectively and strategize for profitability.