Types of costs

Direct costs are costs that cann be attributed directly to a product or product line, or a source of revenue from the sale, or a single business unit or the operation of the company. An example of a direct costs would be the cost of tires on a new car.

Indirect costs are very different and cannot be linked to a specific product, entity or activity. The cost of employment or benefits for a car manufacturer is definitely a cost, but it may not be related to each of a vehicle. Each company has a method of allocating indirect costs of different products, revenue from sales, business units, etc. to develop. Most mapping methods are less than perfect, and generally end up randomly to one degree or another. Managers and accounts should always keep an eye on allocation methods for indirect costs and costs figures produced by these methods take a pinch of salt.

Fixed costs are costs that are the same under a fairly broad range of the volume of sales or production output. They are as an albatross around your neck for companies and a company has to sell his product at a sufficiently high profit at least breaking even.

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

Relevant is essentially future costs that may arise, depending on the strategic direction a company takes. If a car manufacturer decides to increase the production of tyres, but the cost goes up, then that cost into account.

Irrelevant cost that should be left aside when deciding on a future course of action. They charge that can make a wrong decision. The relevant costs are future costs, is irrelevant costs costs that was created earlier. Money is gone.

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