Product Cost Classification

This time we will summarize and share about product cost classifications starting from product costs, production volume to evaluation during production, happy reading …

Table of contents :

  • Cost Classification
    • 1). Fixed cost
    • 2). Variable cost
    • 3). Direct cost (direct cost)
    • 4). Indirect cost (indirect cost)
    • 5). Operation cost (operating costs)
    • 6). Maintenance costs (maintenance costs)
    • 7). First or Investment cost (investment cost)
    • 8). Incremental cost
    • 9). Marginal cost
    • 10). Unit cost
  • Product Cost
  • Production Volume
    • 1). Variable Cost
    • 2). Fixed Cost
  • Decision Fee
  • Evaluation
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Cost Classification

Cost is an economic resource sacrifice that is measured in units of money, which has already occurred, is occurring or is likely to occur for a particular purpose.

There are several classifications regarding costs. Below are some definitions along with examples of cost classification:

1). Fixed cost

Is a total cost that remains within the range of changes in the volume of a particular activity. The size of the exact costs is influenced by
the long-term state of the company, technology and management methods and strategies.

Examples include: land and building taxes, employee salaries and insurance.

2). Variable cost

It is a cost whose total changes with changes in the volume of activity. Variable costs per unit will remain or equal with changes in volume of activity. Examples such as: raw material costs, advertising costs and also commissions for a selesman according to their level.

3). Direct cost (direct cost)

It is a cost that occurs where the only cause is because there is something that must be financed. Examples include: raw material costs, labor costs and also lawyers


Also Read:   Understanding Cost


4). Indirect cost (indirect cost)

Is a cost that occurs not only due to something thought about, in relation to the product, indirect costs are known as factory overhead costs. Examples include: building insurance costs paid by the company and also motorbike rental fees.

5). Operation cost (operating costs)

Are the costs incurred to operate a system or run a system. Examples such as: operator salary costs.

6). Maintenance costs (maintenance costs)

Is the cost incurred to maintain a system in its operating life. Examples include: equipment maintenance costs and factory facilities

7). First or Investment cost (investment cost)

Is the initial cost before an operational activity is carried out. Examples such as: investment costs for land, materials and machinery in company operations.

8). Incremental cost

These are costs that arise because of an increase or decrease in output (generally the result of production or operation activities). Incremental cost is also one of the costs that occur as a result of a decision.

Incremental cost is measured from the change in IC because of a decision. Therefore it can be variable, it can also be fixed.

Examples such as: increasing the total cost of production due to management decisions for additional labor and raw materials.

9). Marginal cost

It is an increase in costs that must be incurred by the company as a cause for an increase in one output. The difference with incremental cost is that it is in the aspect that changes the total cost.

If in incremental cost changes in total costs are influenced by changes in decisions, at marginal cost changes in total costs are influenced by the addition of one unit of product.

Examples such as: a company must increase its production cost budget due to additional requests from previous orderers.


Also Read:   Understanding COGS (Cost Of Goods Sold)


10). Unit cost

Is the cost per unit of product. Mathematically, unit cost is defined as the value of dividing the total cost required by the number of product units (goods or services) produced.

For example, a company can find out information about the cost price per unit piece of a product produced by calculating the unit cost.

Product Cost

Classification or classification of costs is a process of systematically grouping all the elements into certain groups so that they are more concise in order to present more detailed information.

Cost is a sacrifice from economic resources that can be measured in units of money that has occurred or may be incurred for a particular purpose.

The main elements of the cost are:

1). Cost is a sacrifice of an economic resource
2). Measured in units of money
3). has happened or has the potential to occur
4). For a special purpose

Production Volume

1). Variable Cost

The cost component varies according to the volume of production obtained. The greater the sales volume, the greater the costs.

Examples include the cost of raw materials and also the cost of labor in making shoes. If the leather material for the shoes is IDR 2,000 per pair and the employee costs IDR 500 per shoe, then the production cost for 1 pair of shoes is IDR 3,000.

If 1 day = 10 shoes x 3,000 = 300,000
If 1 day = 20 shoes x 3,000 = 600,000

2). Fixed Cost

Costs are always constant and are not affected by production volume. Costs will still have two characteristics, namely costs that do not change or are not influenced by certain periods or activities.

If the volume is low, the fixed cost is high, or vice versa, at high volume, the fixed cost per unit is low.


Also Read:   Understanding Mutual Funds


For example: a computer shop employee’s salary per month is IDR 800,000. If in one month the shop only serves 10x purchases or 30x, the employee’s salary is still Rp. 800,000.

Decision Fee

Management always makes decisions that involve various things, for example, such as decisions in routine production activities or decisions taken on certain problems.

Routine decision making generally occurs and also relates to carrying out production activities that the company carries out regularly and regularly.

Making special decisions is decisions that are irregular or not routinely carried out by the company. Decision making, especially in companies, has many types, including the following:

1). Decision to create or buy from other places
2). Decision to keep or stop the business
3). Renting or selling company facilities
4). Accept or reject special orders
5). Sell ​​or process further


The performance evaluation and employee performance appraisal as stated by Leon C. Menggison (1981: 310) in Mangkunegara (2000: 69) are

As follows: “Performance Appraisal is a process used by leaders to determine whether an employee is doing his job in accordance with his duties and responsibilities”.


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