1. Variable costs will vary in direct proportion to changes in the level of an activity (1. Walther & Skousen, Managerial and Cost Accounting, 2009, 37). In other words this cost can’t be the same in all periods of time. It can be for example electricity bill for company’s office or fuel for the truck in the warehouse.
Fixed costs are opposite for variable costs. Fixed cost don’t change with the level of an activity. Even if the output or input of a unit changes, it will still remain in the same amount (2. Walther & Skousen, Managerial and Cost Accounting, 2009, 38). Fixed cost can be for example a rent, an aircraft for the airline company or a property tax.
The biggest differences between these two costs are changes. Fixed cost will always remain the same although there might be some adjusting for example because of taxes. Variable costs changes during the time. It’s hard to predict the variable costs because of the usage and for example fuel prices.
2. Direct costs are costs related to a specific cost object. It’s an item which costs are compiled for example person and a product (3. Bragg, What are examples of direct costs?, 2014). The changes in for example material cost will have an effect on products price. So any effect …show more content…
This includes all fixed, variable, and mixed costs that are directly or indirectly related to the manufacturing of the product. This includes direct labor, direct materials, variable manufacturing and sales costs, fixed manufacturing and selling costs (6. O’Connor, Variable & Absorption Costing for Manufacturing, 2013.) Usually it’s used in internal management and external parties for example investors. Absorption costing is most commonly used, as it is the accepted method under GAAP, IRS Tax, and IFRS for financial reporting (7. O’Connor, Variable & Absorption Costing for Manufacturing,
Fixed costs are opposite for variable costs. Fixed cost don’t change with the level of an activity. Even if the output or input of a unit changes, it will still remain in the same amount (2. Walther & Skousen, Managerial and Cost Accounting, 2009, 38). Fixed cost can be for example a rent, an aircraft for the airline company or a property tax.
The biggest differences between these two costs are changes. Fixed cost will always remain the same although there might be some adjusting for example because of taxes. Variable costs changes during the time. It’s hard to predict the variable costs because of the usage and for example fuel prices.
2. Direct costs are costs related to a specific cost object. It’s an item which costs are compiled for example person and a product (3. Bragg, What are examples of direct costs?, 2014). The changes in for example material cost will have an effect on products price. So any effect …show more content…
This includes all fixed, variable, and mixed costs that are directly or indirectly related to the manufacturing of the product. This includes direct labor, direct materials, variable manufacturing and sales costs, fixed manufacturing and selling costs (6. O’Connor, Variable & Absorption Costing for Manufacturing, 2013.) Usually it’s used in internal management and external parties for example investors. Absorption costing is most commonly used, as it is the accepted method under GAAP, IRS Tax, and IFRS for financial reporting (7. O’Connor, Variable & Absorption Costing for Manufacturing,