Types of Costs

0 like 0 dislike
374 views
in Articles - Herogue
Direct costs are those costs that cann be directly attributed to a product or product line, or to one source of sales revenue, or one business unit or operation of the business. An example of a direct cost would be the cost of tires on a new automobile.

Indirect costs are very different and can't be attached to any specific product, unit or activity. The cost of labor or benefits for an auto manufacturer is certainly a cost, but it can't be attached to any one vehicle. Each business has to devise a method of allocating indirect costs to different products, sources of sales revenue, business units, etc. Most allocation methods are less than perfect, and generally end up being arbitrary to one degree or another. Business managers and accounts should always keep an eye on the allocation methods used for indirect costs and take the cost figures produced by these methods with a grain of salt.

Fixed costs are those costs that stay the same over a relatively broad range of sales volume or production output. They're like an albatross around the neck of business and a company must sell its product at a high enough profit to at least break even.

Variable costs can increase and decrease in proportion to changes in sales or production level. Variable costs vary proportionately with changes in production/

Relevant costs are essentially future costs that could be incurred, depending on what strategic course a business takes. If an auto manufacturer decides to increase production, but the cost of tires goes up, than that cost needs to be taken into consideration.

Irrelevant costs are those that should be disregarded when deciding on a future course of action. They're costs that could cause you to make a wrong decision. Whereas relevant costs are future costs, irrelevant costs are those costs that were incurred in the past. The money's gone.

Please log in or register to reply to this post.

Related posts

0 like 0 dislike
0 comments 380 views
0 like 0 dislike
0 comments 269 views
0 like 0 dislike
0 comments 331 views
0 like 0 dislike
0 comments 322 views
0 like 0 dislike
0 comments 347 views
0 like 0 dislike
0 comments 314 views
0 like 0 dislike
0 comments 460 views
0 like 0 dislike
0 comments 335 views
0 like 0 dislike
0 comments 1,378 views
0 like 0 dislike
0 comments 476 views
0 like 0 dislike
0 comments 446 views
0 like 0 dislike
0 comments 437 views
0 like 0 dislike
0 comments 440 views
0 like 0 dislike
0 comments 475 views
0 like 0 dislike
0 comments 468 views
0 like 0 dislike
0 comments 451 views
0 like 0 dislike
0 comments 435 views
0 like 0 dislike
0 comments 419 views
0 like 0 dislike
0 comments 438 views
0 like 0 dislike
0 comments 462 views
0 like 0 dislike
0 comments 417 views
0 like 0 dislike
0 comments 426 views
0 like 0 dislike
0 comments 457 views
0 like 0 dislike
0 comments 406 views
0 like 0 dislike
0 comments 438 views
0 like 0 dislike
0 comments 435 views
0 like 0 dislike
0 comments 441 views
0 like 0 dislike
0 comments 399 views
0 like 0 dislike
0 comments 422 views
0 like 0 dislike
0 comments 396 views
0 like 0 dislike
0 comments 467 views
0 like 0 dislike
0 comments 385 views
0 like 0 dislike
0 comments 381 views
0 like 0 dislike
0 comments 311 views
0 like 0 dislike
0 comments 369 views
0 like 0 dislike
0 comments 358 views
0 like 0 dislike
0 comments 315 views
0 like 0 dislike
0 comments 409 views
0 like 0 dislike
0 comments 360 views
0 like 0 dislike
0 comments 337 views
0 like 0 dislike
0 comments 328 views
0 like 0 dislike
0 comments 360 views

55,458 posts

595 comments

2 comments

855,540 users

Connect with us:
...