Utah Contractor Practice Exam

What is a fixed cost that a construction company might incur?

1. Raw materials

2. Employee overtime

3. Rent for office space

4. Subcontractor fees

The correct answer is: Rent for office space

A fixed cost in the context of a construction company refers to expenses that do not change with the level of production or project activity. These costs are incurred regardless of how many projects the company is working on or how busy they are. Rent for office space fits this definition perfectly, as it is a recurring expense that remains constant over time, typically outlined in a lease agreement. In contrast, raw materials are variable costs because their expenses can fluctuate with the amount of work the company is doing. Employee overtime also represents a variable cost since it is incurred when extra labor is needed for specific projects. Subcontractor fees can vary depending on the projects undertaken and the terms of the contracts with subcontractors, making them another type of variable cost. Therefore, rent for office space stands out as a clear example of a fixed cost that a construction company must manage.