Classifying Costs within a Business for Bookkeeping
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.