Which of the following is considered a fixed cost?

Which of the following is considered a fixed cost?

• A. Depreciation of machinery
• B. Fuel costs
• C. Seeds purchased
• D. Freight and handling

Answer: (A)

Fixed costs are expenses that don’t change with how much you produce in the short term. Depreciation of machinery fits this because it represents the cost allocation of equipment over its useful life, determined by purchase price and asset life, and it isn’t tied to the level of production. Whether you plant more or less, the depreciation charge stays the same each period (assuming the asset base doesn’t change). In contrast, fuel costs vary with usage, seeds purchased depend on the area or seed rate, and freight and handling depend on how much product you move. So depreciation is the best example of a fixed cost.

Fixed costs are expenses that don’t change with how much you produce in the short term. Depreciation of machinery fits this because it represents the cost allocation of equipment over its useful life, determined by purchase price and asset life, and it isn’t tied to the level of production. Whether you plant more or less, the depreciation charge stays the same each period (assuming the asset base doesn’t change). In contrast, fuel costs vary with usage, seeds purchased depend on the area or seed rate, and freight and handling depend on how much product you move. So depreciation is the best example of a fixed cost.