Utah Contractor Practice Exam

Which of the following is categorized as a fixed cost?

1. Overhead

2. Direct costs

3. Travel expenses

4. Labor

The correct answer is: Overhead

A fixed cost is one that does not change with the level of output or activity. Overhead costs typically fit this definition, as they are ongoing expenses that remain constant regardless of the project's scale or the number of units produced. These costs often include things like rent, utilities, and insurance, which are incurred regardless of how much work a contractor is doing. On the other hand, direct costs are typically variable costs, as they fluctuate based on the scope of work being performed. Travel expenses can vary significantly based on the number of trips taken and the distance traveled, making them a variable cost as well. Labor costs can also be either fixed or variable, depending on whether the labor is salaried (fixed) or paid on an hourly basis tied to the amount of work performed (variable). Therefore, overhead is correctly categorized as a fixed cost since it does not change with the level of production or activity.