Classifying Costs within a Business for Bookkeeping - dummies

By Jane E. Kelly

Part of Bookkeeping & Accounting All-in-One For Dummies Cheat Sheet (UK Edition)

Accountants must be aware of the different types of costs. Many different cost types exist within businesses, particularly manufacturing businesses. Following, you’ll find a selection of costs that an accountant might look at and analyse, as part of their role.

  • Fixed cost: A cost that remains the same over a specified period, regardless of the level of production output; for example, rent.

  • Variable cost: A cost that varies depending on the level of sales or production output. For example, if you increase the number of books sold, the cost of paper and ink increases.

  • Direct cost: A cost that you can clearly attribute to either a product or service. For example, a direct cost in the book publishing industry is paper.

  • Indirect cost: A cost you can’t specifically attribute to a product or service. For example, in the book publishing industry the cost of heating the building where the books are produced is an indirect cost of producing the books. It’s a cost of doing business, but you can’t specifically allocate it to a product.