Multiple Choice
A change in the residual value of a depreciable asset is treated as a change in accounting:
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3. Accrual Accounting Concepts
Adjusting Entries: Depreciation
Multiple Choice
In financial accounting, when depreciation is recorded using the straight-line method, how is depreciation expense most commonly classified with respect to changes in production or sales volume?
A
Fixed cost, because the depreciation expense is the same each period regardless of activity level (within the relevant range)
B
Period cost that is never recorded through an adjusting entry
C
Mixed cost, because depreciation expense always has both fixed and variable components under straight-line depreciation
D
Variable cost, because depreciation expense increases and decreases in direct proportion to units produced
Verified step by step guidance1
Understand the nature of straight-line depreciation: it allocates the cost of an asset evenly over its useful life, resulting in the same depreciation expense each accounting period.
Recognize that fixed costs are expenses that do not change with the level of production or sales volume within the relevant range.
Analyze how depreciation expense behaves under the straight-line method: since it remains constant regardless of production or sales volume, it does not vary with activity levels.
Compare this behavior to variable costs, which fluctuate directly with production or sales volume, and mixed costs, which have both fixed and variable components.
Conclude that straight-line depreciation expense is classified as a fixed cost because it remains the same each period regardless of changes in production or sales volume.
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