Cost Classification

This time we will share about Classification of Costs, Fixed Costs, Variable, and Semi-variable Costs, happy reading …

Table of contents :

  • Cost Classification
  • Fixed cost
  • Variable
    • Variable costs (variable cost)
  • Semi Variable Costs
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Cost Classification

Costs relate to all types of business, nonbusiness, manufacturing, retail and service organizations. Generally, several kinds of costs are incurred and also the way of classifying costs depending on the mode of organization.

Managerial accounting can be applied to a type of organization. It is for this reason that we consider the cost characteristics of various firms, manufacturing, trading, and services.

Main activities of manufacturing companies include almost all activities that exist in other types of organizations.

Fixed cost

Fixed costs or commonly known as fixed costs are costs incurred by a company in constant conditions or generally always do not change even though there is an increase or decrease in the number of goods and services produced.

It can be said that fixed costs are not affected at all or regardless of changes in business activities carried out by the company.

Fixed costs are divided into 2 types, namely committed fixed costs and discretionary fixed costs. Examples of the fixed costs themselves are building rental costs, employee salaries, taxes, insurance costs, excise fees (if product delivery is made overseas), loan payments, and so on.

Fixed costs that are always constant or fixed does not mean that fixed costs will always be constant. Fixed costs can change at any time in the future.

An example is the cost of renting a building. The company will always pay the rent for the same building every year, even if the products produced by the company are many or a few.

 

Also Read:   Understanding Incentives

 

However, the cost of renting a building can increase or decrease at any time according to the wishes of the building owner himself. So it means that fixed costs will always be constant or fixed for a certain period,

The period in which costs can be added or decreased by the parties concerned but these changes occur over a long period of time.

Variable

Variable costs (variable cost)

Variable costs or what is commonly referred to as variable costs are costs incurred by a company in a variable fashion based on changes in the number of products produced.

The greater the volume of products produced by a company, the greater the costs that must be spent to make these products.

Vice versa, if the volume of product produced is small, the costs incurred will also be small.

it can be said that variable costs depend on fluctuations in business activities in producing goods carried out by a company.

Examples of variable costs include the cost of raw materials for a product, direct labor costs in the form of payments to employees (usually calculated based on how many units of the product can be produced per person),

Product packaging costs, cargo costs (varies according to the destination country where the product will be traded), and other costs.

Semi Variable Costs

Variable costs or commonly known as variable costs are costs that generally vary according to business volume. The greater your sales volume, the greater the costs you have to spend.

For example, the cost of raw materials and also the cost of labor in making a product are variable costs.

 

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