Types of costs

 

Direct costs are expenses that are not directly attributable to the operation of a business or product line or source of sales revenue or to one business unit. An example of an Auto Ju cost is the cost of tires on a new car.

Indirect costs are very different and cannot be linked to a specific product, unit or activity. The cost or benefit of a car manufacturer is certainly a cost, but it cannot be combined into one vehicle. Every business should work out an indirect cost allocation system for different products, sales revenue sources, business units, etc. Most allocations are less than perfect and usually end up being arbitrary to one section or another. Business managers and accounts should always be on the lookout for allocation methods for indirect costs, and the costs produced by these methods should be taken with a grain of salt.

Fixed costs are costs that are comparable to a relatively wide range of sales volume or product output. They are like albatross around the neck of the business and a company must sell their product for a high profit even at the very least.

Variable costs can be proportional to changes in sales or product level. Variable costs vary proportionately with product changes /

Relevant costs can be essentially future costs based on the strategic course set up by a business. Even if a car manufacturer decides to increase production, the cost of tires is going to have to be taken into consideration.

Non-applicable costs are costs that must be ignored when determining a future course of action. Those are costs that can lead to a wrong decision. Relevant costs are future costs, and non-applicable expenses are past costs. The money’s gone.