International Association of Accessibility Professionals (IAAP) Certified Administrative Professional (CAP) Practice Exam

What are predetermined expenses with a high degree of certainty, such as payroll and rent, classified as?

1. Variable costs

2. Fixed costs

3. Discretionary costs

4. Operating expenses

The correct answer is: Fixed costs

Predetermined expenses that have a high degree of certainty, such as payroll and rent, are classified as fixed costs. These costs remain constant over a specific period and do not fluctuate with the level of output or sales. For example, regardless of how much product a company sells, the rent for physical space and salaries for employees typically do not change from month to month, making them predictable and stable expenses. In contrast, variable costs vary with production levels, meaning they increase or decrease depending on how much a company is producing or selling. Discretionary costs are related to operational expenses that are not essential for the primary function of the business and can often be adjusted or eliminated if necessary. Operating expenses encompass both fixed and variable costs associated with running a business on a daily basis but do not specifically denote the certainty of the costs involved. Hence, fixed costs is the most accurate classification for payroll and rent in this context.