International Baccalaureate (IB) Practice Exam

Rent is classified as which type of expense?

1. Fixed expense

2. Variable expense

3. Discretionary expense

4. Intermittent expense

The correct answer is: Fixed expense

Rent is classified as a fixed expense because it remains constant over a period of time, typically paid on a regular schedule (monthly, quarterly, etc.) and does not fluctuate based on the level of activity or production. Fixed expenses, such as rent, are obligations that a business or individual incurs regardless of their revenue or occupancy level. This consistency helps in budgeting and financial planning. In contrast, variable expenses change in relation to the level of activity; for instance, costs that vary directly with sales volume would fall under this category. Discretionary expenses are non-essential expenditures that can be adjusted or eliminated without immediate consequences, like entertainment or luxury services. Intermittent expenses occur sporadically and do not follow a regular schedule. Hence, understanding these distinctions clarifies why rent is best classified as a fixed expense.