Types Of Costs Incurred By Businesses, Companies and Corporations by Chris Gilmour

There are many types of costs incurred with running a business. A common type of cost is called a "Direct Cost" which are costs that are often directly featured to a product or product line. Sometimes direct costs can be attributed to one source of the sales income or perhaps a business unit or function of the business. For example, a direct cost could be anything such as the cost of brand new tyres on a taxi.

There are other costs including "Indirect Costs". Indirect costs are different and and are determined as those that are not connected to a specific product, unit or an activity. In regards to the cost of labour or the benefits for a car maker, it is certainly considered as a cost, but because it can not be connected to the production of one vehicle they can be referred to as Indirect Costs. Every business will have to consider a way of allocating indirect costs to the various products, sources of sales incomes, or business units. A lot of allocation methods are not always the best way, and might result in becoming arbitrary to one degree. Managers, owners and accounts departments might fair well to keep an eye on the amounts of allocation methods being used for many of the indirect costs and not rely consistently on the total cost figures produced when administering these methods.

Other terms include "Fixed Costs" which are those types of costs that will tend to or will permanently remain constant across a broad range of volumes or outputs. Fixed costs are sometimes considered like a 'pain around the neck' of business as the company or business has to ensure the sale of a certain amount of product to at least break even or equal. The variable costs that businesses experience tend to increase or decrease based on the proportion to changes in sales, demand or level of production/supply. These type of costs often vary proportionate to changes in production.

There are 'future costs' which are known as "Relevant Costs" and these are future costs that might be incurred dependent upon the premeditated plan the business will take. For example, an automobile maker might decide to boost overall production, but if the cost of car tyres increases that the new cost will need to be taken into account with factoring the total overall costs.

Some people refer to "Irrelevant Costs" which are those types of costs that should be ignored when considering a future plan of action. Sometimes they are believed to be costs that can make you decide to take an incorrect decision. On the other hand, Relevant Costs, mentioned earlier as Future Costs, are the costs incurred in the future by taking a decision now whereas the irrelevant costs will be those costs acquired in the past. In this sense you have to accept that the money has gone and is irretrievable.

About the Author

Chris has several home business websites that promote valid working from home opportunities. He writes articles about finance, the ways to spot a home work scam, treating head louse and nits by using a home remedy for head lice and Italian lifestyle and culture including the various ways to learn italian.