Depreciation is generally treated as what type of cost?

• A. Variable cost
• B. Fixed cost
• C. Mixed cost
• D. Sunk cost

Answer: (B)

Depreciation is about cost behavior. It is treated as a fixed cost because once the asset is in use, the depreciation expense recorded in each period tends to stay the same regardless of how much you produce or sell, at least over a relevant range. The amount is determined by the asset’s cost, its useful life, and the depreciation method chosen, not by current output. So it doesn’t rise with more production and doesn’t fall with less, which is the hallmark of a fixed cost.

It isn’t a variable cost, since variable costs change with volume. It isn’t a mixed cost, which would combine fixed and variable elements. And while the original purchase is a sunk cost, depreciation itself is not a separate sunk cost; it’s simply the ongoing accounting allocation of that past expenditure over time.