Transportation Operations LINCS Practice Exam

Depreciation on buildings and fixtures is classified as which type of cost?

1. Variable Cost

2. Fixed Cost

3. Opportunity Cost

4. Sunk Cost

The correct answer is: Fixed Cost

Depreciation on buildings and fixtures is classified as a fixed cost because it remains consistent over time, regardless of the level of production or business activity. Fixed costs are expenses that do not change with the volume of goods or services produced and are incurred even if no output occurs. In this case, buildings and fixtures will typically lose value over time due to wear and tear, but the rate of depreciation is predetermined and does not fluctuate with production levels. In contrast, variable costs change in direct proportion to the level of production or sales, such as raw materials or labor costs associated with production. Opportunity costs represent the potential benefits that are forfeited by choosing one alternative over another, while sunk costs refer to past expenses that cannot be recovered. Since depreciation is a predictable, regular expense determined by the initial investment and the useful life of the asset, it is definitively identified as a fixed cost.