Cost Categories That An Accountant Needs to Know

Cost management is a concern because based on the results of research conducted by CHASO in 2001, that since 1995, the use of costs has reached 189% above the original estimated cost. A project needs to compile an estimated cost along with the resources required to complete a project. To support all of this, someone is entrusted with managing this process, which acknowledge as accountants or finance.

What is meant by project cost is an expense process or activity to obtain goods or services from a third party, which is needed to ensure that the project will be completed within an approved budget.

How can an accountant manage all the financing of a project? Well, they must understand several categories cost that an accountant needs to know to cost grouping in calculating project cost estimates.

Cost Categories That An Accountant Needs to Know

1. Direct Cost

Direct Costs are costs incurred in connection with the implementation of a project and will affect the progress produced by the project team. Delays in implementing direct costs will result in delays in completion of a project. Direct costs are costs that can be separated and recognized directly used to produce a unit of output. Direct cost directly linked to your specific project output.

Examples of direct costs:

1. Cost of procurement of goods
2. Labor Wages
3. Shipment Cost
4. Maintenance Cost
5. Need New Software
6. Sales Commissions

 

2. Indirect Cost

Indirect costs are costs that cannot be linked and charged directly to a project but must exist and cannot be separated from an ongoing project.
Indirect costs do not directly affect project work progress, such as insurance payments. However, it must be taken into account, because we do not know how the project will be implemented in the future. Indirect costs are also called joint costs or overhead costs for all units of output produced. Indirect costs are categorized into 3: unexpected cost, overhead cost and profit cost.

Example of Indirect Costs:

1. Building Maintenance
2. Insurance
3. Electricity
4. Rent Vehicle
5. Rent Office
6. Office Expenses
7. Bank Guarantee
8. Force Majeure

 

3. Fixed Cost

Fixed costs are costs that within a certain period of time the amount does not change regardless of the amount of sales or production incurred by a company. This fixed cost will not be affected at all, even though there are changes in the business activities carried out by the company and a decrease in the number of goods or services produced. Fixed costs are expenses that must be paid by companies, regardless of specific business activities.
Fixed costs are divided into 2 types, namely committed fixed costs and discretionary fixed costs. Fixed cost is one time cost. Fixed costs are usually determined by an agreement or contract schedule

Examples of Fixed Cost:

1. Purchasing Company Vehicles,
2. Purchasing Computers,
3. Purchasing servers,
4. Custom Fees (if products are shipped overseas),
5. Loan Payments

 

4. Variable Costs

Variable cost is a cost incurred by a company which can change proportionally (to be big or small) depending on the number of products and services produced. The more products sold or produced, the variable costs will be higher and vice versa. Variable costs can go up or down depending on the company’s production volume. Variable cost is the opposite of fixed cost. Variable costs change with changes in the quantity of output. Variable costs are subject to change.

Examples of Variable costs:

1. Gasoline Price
2. Direct Labor costs in the form of wages to employees (usually calculated based on how many units of the product can be produced per person)
3. Product Packaging Costs,
4. Cargo costs (varies according to with the destination country where the product will be traded), and other costs.

 

5. Sunk Cost

Sunk cost is always in a project. Sunk costs are costs that have been incurred or have been incurred in the past and cannot be changed or recovered by any decisions made now or in the future. Sunk cost is not a differential cost. Sunk Cost does not influence short-term project decisions. Sunk costs are not counted in the project cost component at all because the project sees the calculation and analysis of relevant costs. Sunk Cost is a fee that has already been paid or not constant expense.

Example of Sunk Cost:

1. Market Research
2. Marketing Expenses

Conclusion

Companies have some flexibility in breaking down costs on their financial statements. Therefore fixed costs can be allocated throughout the income statement.

Source: Investopedia