Complete These Sentences to Describe Categories of Budget Expenditure Items
A fixed expense is one for which the amount is
fixed, and it should be considered constant.
A variable expense is one for which the amount is
variable, and it should be considered flexible.
Discretionary spending is the most
flexible budget item and the easiest to change.
Final answer:
A fixed expense is one with a constant amount, while a variable expense is one with an amount that varies. Discretionary spending is the most flexible budget item and can be easily changed.
Explanation:
A fixed expense is one for which the amount does not change and it should be considered a constant in the budget. An example of a fixed expense is the rent on a factory or retail space. The amount of fixed expenses remains the same regardless of the level of production.
A variable expense is one for which the amount varies and it should be considered flexible in the budget. An example of a variable expense is the cost of raw materials for production. The amount of variable expenses changes depending on the level of production.
Discretionary spending is the most flexible budget item and the easiest to change. It includes expenses like entertainment and personal care items. You have control over the amount spent on discretionary expenses.
Why is it important to distinguish between fixed and variable expenses in budget planning? It is important to distinguish between fixed and variable expenses in budget planning because it helps in understanding the nature of expenses and allows for better financial management. By identifying fixed expenses, one can allocate a set amount each month without any surprises, while variable expenses require flexibility in budgeting to accommodate changes in spending. This distinction helps individuals and businesses make informed decisions about their financial priorities and overall budget allocations.