Milady Esthetics State Board Practice Test

Loan payments are an example of?

1. Variable costs

2. Fixed costs

3. One-time costs

4. Operational costs

The correct answer is: Fixed costs

Loan payments are considered fixed costs because they represent a consistent and periodic payment obligation that does not fluctuate over time. Fixed costs, such as loan payments, remain constant regardless of business activity levels; in this case, whether the business is generating revenue or not, the loan payment must still be paid at regular intervals. In contrast, variable costs change with the level of production or sales – expenses like raw materials or direct labor may increase or decrease depending on business operations. One-time costs refer to expenses that occur only once and are not recurring, such as purchasing equipment or making a one-off purchase, which is not applicable to loan payments that are ongoing. Operational costs typically encompass both fixed and variable expenses associated with running a business, but in this instance, loan payments fall specifically under fixed costs due to their predictability and regularity.