Types Of Costs, Definition, Functions And Classifications

ACTIVELY SHARE — As a businessman, you must be familiar with the types of costs, which can affect the activities of production costs or daily activities within the company. For example, the cost of raw materials, labor, electricity and so on.

Every activity or transaction process that is known and excluded from the types of costs, will help you to avoid losses.

Therefore, in cost accounting, of course, there are cost concepts such as cost functions, types of costs, objectives, and understanding of these costs. In simple terms, costs are sacrifices or expenses to obtain goods or services that are useful and provide benefits in the future.

Thus, after knowing the various types of costs, you will certainly be helped in analyzing and understanding every production decision within the company.

Know What is the Definition of Cost?

In cost accounting, the definition of cost is the entire sacrifice of a production process, whether the cost has already occurred or will occur and is expressed in units or at the prevailing market price. But in another opinion that the term cost is an expense made by one party, be it a company or an individual.

So that in general the concept of cost is used for trading or production activities, even having to pay some money spent by companies or individuals with the aim of making products and services.

Thus later these costs will be related to the cost of the cost of production, maintenance costs, or other costs that can be considered by the company as the selling price of the product.

Also read Cost of Orders: How do you know and calculate it?

How Do The Types Of Costs Function?

The existence of a function of this type of cost is also useful in helping the management division in making a decision, namely as a function:

1. Types of Costs Determine Cost

Serves to determine the cost of goods or services produced by the company, so that later the products sold cannot be negotiated higher or too low by customers and consumers.

To determine the cost of goods can be done by monitoring production, summarizing all cost components, classifying costs, and recording all costs. This production process activity is also related to historical cost data, which can be used as a reference by the management division to determine the cost of production.

2. Able to Control and Plan Costs

Basically, historical data will be used as a reference by companies to estimate costs and consider other factors that can affect costs. So as the management side, the existence of this historical data also functions to control and plan costs, which will monitor whether the costs are deviations or not. Such as the difference between the actual cost and the planning cost.

However, if there is a difference, of course, the management will evaluate the cause of the difference, to consider any corrections made as a goal to control the company’s costs.

By controlling and managing the company’s production costs manually, even more so with the many types of costs incurred. Of course, you will find it difficult and confused to present financial reports related to your entry and exit costs.

Now with the help of accountants and technology that has developed rapidly, you can even do a neat bookkeeping, you can use professional services such as bookkeeping services. Can help you get financial reports in real time, create invoices, take care of elements of tax calculations, and payroll.

What are the Types of Cost?

In general, costs can be divided into several types of costs that support the company’s production activities such as:

1. Types of Costs: Variable Costs

The existence of a variable cost is a cost to determine the volume of activity that can change. So when the volume of activity increases, the variable costs will also increase.

In addition, if the volume of activity decreases, the variable costs will decrease. As an example of variable costs, namely the cost of raw materials, advertising costs and so on.

2. Types of Fees: Fixed Costs

The existence of fixed costs serves to issue a fixed or stable amount of costs, the existence of these costs also does not affect the number or activity of the production process with a certain level.

So these costs can usually be affected by conditions that have a long period of time. Examples of fixed costs are property taxes, payroll costs, and insurance.

3. Types of Costs: Semi Variable Costs

This type of semi-variable cost is one form of expenditure on the type of fixed costs and variable costs, where these semi-costs will experience changes if there is a change in the volume of activity.

However, the changes in these activities are not always proportional to the size of the costs. With examples of semi costs, namely the cost of telephone, electricity, water and others.

4. Types of Costs: Indirect Costs

Types of indirect costs are factory overhead costs, where these costs are incurred and affect the activities of the production process as a whole and not each unit of product.

Usually examples of indirect costs consist of vehicle rental costs, building rentals, insurance and so on.

5. Types of Costs: Direct Costs

Direct costs are costs incurred because of a need that is mandatory or must be met on the spot. Usually these costs can also be known to be classified in production or units of output. For example, costs in the form of raw materials and labor costs.

6. Operating Cost

In operating costs are all costs incurred for direct operation or production process activities. Take the example of operating costs and operator salaries.

7. Maintenance Fee

For maintenance costs is an important cost to run a business, this cost serves to perform maintenance of vehicles, buildings, equipment and so on.

Usually this maintenance cost also serves to maintain all the tools used in the company’s production process.

8. Investment Cost

Investment costs are costs incurred to run a business, so these costs can be used as assets, containers, or machine purchases.

9. Total Cost

The existence of this total cost is a cost that functions to produce output products. So these costs are usually comprehensive, such as affecting fixed costs, variable costs and semi-variable costs.

For example, the total cost is the cost of raw materials, administration, marketing, production costs and so on.

Also Read: Know the Economic Order Quantity (EOQ) and How to Calculate It.

How to classify the Types of Costs?

The emergence of these types of costs will also affect the classification of costs with the objectives to be achieved. Here’s the classification:

1. The existence of an object of expenditure

2. Has a main function in the company

3. Affect the existence of a cost relationship with something that must be financed.

4. The existence of cost behavior related to changes in the volume of activity.

5. Have benefits and time frames.

Thus the discussion of the types of costs in cost accounting, so that as a businessman or accountant can estimate which potential changes and determine costs in the future.

Through this article, it can also help you understand the concept of cost, and can determine the cost of the product through the costs incurred. So this method is useful to minimize the risk of cost calculation errors, which result in company losses.

However, with manual bookkeeping and cost calculations via excel or other bookkeeping, there can be a risk of incorrect recording and calculation differences.

So that the financial data you want to see is also not always updated or in real time. Now you can take advantage of accounting software technology. What is that? Is an online-based accounting system or software that can help you clean up your books more quickly and neatly.

Accounting software also easy to do stock monitoring, automatic invoicing, automatic bank reconciliation transactions, asset calculations, and easy-to-manage business finances because there are more than 20 financial reports in real time.

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