Which type of expense varies based on utilization, such as contract labor?

Variable expenses are costs that fluctuate based on the level of service or production. Examples include contract labor, utility costs that vary with usage, and raw materials that change in price. When utilization increases, variable expenses typically increase as well, reflecting the direct relationship to the service provided or products delivered. This characteristic of variable expenses allows organizations to align costs closely with business activities, making it easier to manage budgets in response to operational demands.

In contrast, fixed expenses remain constant regardless of activity levels. These may include rents, salaries of permanent staff, and insurance, which do not change with how much the facility is used. Capital expenses refer to significant investments in physical assets that provide long-term benefits, such as equipment or buildings. Surplus expense is not a standard classification in financial accounting and does not fit the context of expenses that vary with utilization patterns. Understanding these distinctions is crucial for effective financial management in health and fitness facilities or any business environment.