It is very important to distinguish or differentiate business costs as they help in recognizes the cost figures that your business produce by selling goods or services. There are different types of costs such as direct costs, indirect costs, fixed costs, variable costs, relevant costs, irrelevant costs, actual costs, budgeted costs, standard costs, product costs and period costs.
Direct and Indirect Costs
Direct costs are the costs that are directly related to the products. On the other hand indirect costs are distant costs that are difficult to match directly to the products.
Fixed and Variable Costs
Fixed costs remained fixed for every number of units or number of batches produced by the business. On the other hand variable costs decrease or increase with the per unit production of the products.
Relevant and Irrelevant Costs
Relevant costs are those that are directly related to the business and must be considered while planning for the future. These may be termed as the future costs of the business. Irrelevant costs are those costs that can be disregarded while planning for the future. Irrelevant costs are related to the past transactions of the company and associated with the money that is gone.
Actual, Budgeted and Standard Costs
Actual costs are those costs based on the actual transactions of the business. These costs are associated with past transactions so they are also called as historical costs. In addition to this budgeted costs are those costs that are calculated or estimated for a certain accounting period. On the other hand standard costs are the costs carefully engineered by analyzing operations related to production and manufacturing.
Costs that are directly linked to the products are called product costs.
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