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Variable costs are the sum of marginal costs over all units produced. They can also be considered normal costs. Fixed costs and variable costs make up the two components of total cost. Direct costs are costs that can easily be associated with a particular cost object. [2] However, not all variable costs are direct costs.
The equivalent nomenclature in economics is specific cost. [2] Direct costs may be either fixed or variable, but typically comprise materials, labour, and specific expenses such as, e.g. a royalty payment to a patent holder for a given production process, [3] all, directly attributable to a cost object. Thus by industry:
Variable costs are less predictable than their fixed counterparts. What is an example of variable expense? Here are some common examples of variable expenses: Entertainment. Gasoline. Medical ...
The cost of supplying water consists, to a very large extent, of fixed costs (capital costs and personnel costs) and only to a small extent of variable costs that depend on the amount of water consumed (mainly energy and chemicals). Almost all service providers in the world charge tariffs to recover part of their costs.
An important part of standard cost accounting is a variance analysis, which breaks down the variation between actual cost and standard costs into various components (volume variation, material cost variation, labor cost variation, etc.) so managers can understand why costs were different from what was planned and take appropriate action to ...
Indirect costs are costs that are not directly accountable to a cost object (such as a particular project, facility, function or product). Like direct costs, indirect costs may be either fixed or variable. Indirect costs include administration, personnel and security costs. These are those costs which are not directly related to production.
Direct materials cost. Direct labor cost. Manufacturing overhead cost. Non-manufacturing costs are those costs that are not directly incurred in manufacturing a product. [11] Examples of such costs are salary of sales personnel and advertising expenses. Generally, non-manufacturing costs are further classified into two categories: [12]
Variable costing is generally not used for external reporting purposes. Under the Tax Reform Act of 1986, income statements must use absorption costing to comply with GAAP. Variable costing is a costing method that includes only variable manufacturing costs—direct materials, direct labor, and variable manufacturing overhead—in unit product ...