Direct Cost: These are
cost that can be traced back to a product or a cost centre. Simply put, if we
can identify a cost to a specific cost object, then it is a direct cost. For
example, if a company produces furniture, the cost of the wood and the cost of
the craftsperson are direct cost; another good example is the cost of the
materials needed to make a product. The usage of the materials is directly
related to the manufacture of the product.
cost that can be traced back to a product or a cost centre. Simply put, if we
can identify a cost to a specific cost object, then it is a direct cost. For
example, if a company produces furniture, the cost of the wood and the cost of
the craftsperson are direct cost; another good example is the cost of the
materials needed to make a product. The usage of the materials is directly
related to the manufacture of the product.
Indirect
Cost: These
are cost to a business that is not directly related to making a product. For
example, market research is an indirect cost because while it assists in making
decision about production, it does not affect the production of any one unit.
Another common example is the purchase of office supplies.
Cost: These
are cost to a business that is not directly related to making a product. For
example, market research is an indirect cost because while it assists in making
decision about production, it does not affect the production of any one unit.
Another common example is the purchase of office supplies.
Variable
Cost:
These are corporate expenses that vary in direct proportion to the quantity of
output. Unlike fixed cost which remains constant regardless of output, variable
cost are a direct function volume rising, whenever production expands and
falling whenever it contracts. For example raw materials, packaging and labour
directly involved in a company manufacturing process.
Cost:
These are corporate expenses that vary in direct proportion to the quantity of
output. Unlike fixed cost which remains constant regardless of output, variable
cost are a direct function volume rising, whenever production expands and
falling whenever it contracts. For example raw materials, packaging and labour
directly involved in a company manufacturing process.
Importance
of Variable Cost
of Variable Cost
Variable
cost is important for a business to know whether the business is good enough to
run forward if not, it is better to close down before making too much lost.
cost is important for a business to know whether the business is good enough to
run forward if not, it is better to close down before making too much lost.
Fixed Cost: These are
cost that do not change when the quantity of output changes. Unlike variable
costs which change with the amount of output, fixed costs are not zero when
production is zero. For example rent, insurance premiums or loan payment.
cost that do not change when the quantity of output changes. Unlike variable
costs which change with the amount of output, fixed costs are not zero when
production is zero. For example rent, insurance premiums or loan payment.
Overhead
Cost: Expenses
directly associated with the production of goods or services. It can also be
said to an ongoing expense of operating a business. For example, accounting
fee, legal fee, telephone bills, travel expenses, e.t.c.
Cost: Expenses
directly associated with the production of goods or services. It can also be
said to an ongoing expense of operating a business. For example, accounting
fee, legal fee, telephone bills, travel expenses, e.t.c.
Importance
of Overhead Cost to a Business
of Overhead Cost to a Business
Awareness
of overhead cost is important for more than just knowing how much profit is
being made. These figures often play an important role in a company’s
competitiveness. A company generally needs to know what its expenses are when
it is setting prices.
of overhead cost is important for more than just knowing how much profit is
being made. These figures often play an important role in a company’s
competitiveness. A company generally needs to know what its expenses are when
it is setting prices.