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BUSINESS Studies & Its Various Costs – Classifying Costs with Examples

Author: Smith Richard
by Smith Richard
Posted: Oct 06, 2017

Cost refers to the expenses incurred in the manufacturing of goods and services. There are various types of costs which are to be studied in order to solve business studies assignments properly. The different types of costs are studied in detail in a major discipline in business studies known as Cost Accounting.

Costs are associated with production and projects. These are to be accurately highlighted in the financial statements of an organization. These statements help in the decision-making process of the organization for its future planning. Various types of costs are direct, indirect, fixed, variable and operating costs.

Let us study these costs in detail:

  1. Direct Costs: Direct costs constitute the material, labor, expenditure on machinery and distribution costs which are used in the manufacturing of a product of a service. For example, if a worker has worked for eight hours in the factory, the wages for eight hours of work will be the direct cost to the company or factory.
  2. Indirect Costs: These costs are not directly linked to the production process. For example, a company has rented an office. Its electricity bill is common with other offices in the building. So, it is difficult to link it directly to the costs of the company.
  3. Fixed Costs: These are the costs which the company has to pay and it is not affected by the production of goods or services. For example, a company has leased machinery for the production process for Rs 25000 per year. This amount has to be paid by the company no matter it produces one product or 100 products from that machinery.
  4. Variable Costs: These are the costs which vary or fluctuate with the level of production. If the production output increases, the variable costs increase. And if the production output decreases, variable costs decrease.
  5. Operating Costs: These costs are associated with the daily business activities. These may be fixed or variable. For example, a company’s inventory is an example of operating cost. The materials required to be stored which are used in the manufacturing of the products or services are an operational cost to the company. It helps to calculate operating expense ratio of a company to project sales of that company.

The above classification gives an idea of all the costs which are studied in a company’s financial statements. The examples are given alongside help in understanding the concept of costs and their importance in decision making in a company. And business studies assignment writing help from BookMyEssay can also assist you to understand relative costs of the field.

Any business’s profit, growth and development depend upon how it utilizes its available resources. This is done by analyzing different types of costs which incur at different stages of manufacturing of goods and services. Cost Accounting is an effective tool which calculates different types of costs and helps the management to take future decisions and plan new strategies. Help in business studies assignments, it is very essential to have knowledge of all types of costs.

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Author: Smith Richard

Smith Richard

Member since: Oct 23, 2016
Published articles: 8

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