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10 types of business costs

“You will never be rich if your expenses exceed your income; And you will never be poor if your income

“You will never be rich if your expenses exceed your income;
And you will never be poor if your income exceeds your expenses ”
Thomas Chandler

Talking about company means talking about income, but also costs, with the particularity that on some occasions, the latter can be immovable. The key to dealing with them, in the first place, is to know them. Costs are the sum of expenditures incurred by organizations for the acquisition of a good or service, with the intention of generating income in the future. Today we state 10 types of costs that you surely find daily in your SME, and tomorrow, if you want, we analyze them.

1. Costs according to your function

  • Production: raw material costs, labor, etc. and indirect manufacturing expenses.
  • of distribution or sale: they are in which the company incurred to reach its last consumer (advertising, commissions, etc.)
  • Administration: they are those that originate in the administrative area such as salaries, telephones, general offices, etc.
  • Financing: they are those that originate from the use of foreign resources that allow financing the growth and development of the company.

2. Costs according to your identification with an activity, department or product

  • Direct: they identify with an activity, department or product.
  • Indirects: They cannot be identified with a certain activity.

3. Costs depending on the time they were calculated

  • Historical: they are those that occurred at a certain moment, for example those of the products sold or those of those in process. These are important to know the default costs.
  • Predetermined: They are estimated based on statistics and are used to prepare budgets.

4. Costs depending on the time in which they are commissioned or compared to income

  • of period: they are those that identify with the time intervals. For example the rental of the office.
  • Of the product: they are those that are carried against income only when it has contributed to generate directly.

5. Costs according to the control you have

  • Controllable: the organization can control them.
  • Not controllable: sometimes you don’t have the authority to control them.

6. Costs according to their behavior

  • Variables: change or fluctuate in relation to the activity or volume given.
  • fixed: these remain constant during a certain period.

7. Costs based on the importance in decision -making

  • Relevant: This changes depending on the option adopted. It is also known as differentials.
  • Irrelevant: are those that are immutable regardless of the course of action chosen. This classification allows to segment the relevant and irrelevant item in decision making.

8. Costs based on the sacrifice incurred

  • disbursable: those that implied a cash output that allows them to be registered in the form of information generated by accounting. It will later become historical costs.
  • OPPORTUNITY: Those who originate when making a decision and cause the resignation of other types of alternative that could be considered when carrying out a decision.

9. Costs depending on the change caused by an increase or decrease in the activity of the organization

  • Differentials: They are the increases or decreases in the total cost or the change in any cost element, generated by a variation in the operation of the company. These are important in the decision -making process, as they will show the changes or movements arising in the company’s profits before a special order, a change within the company, etc.
  • Submerged: are those that regardless of the course of action that are chosen will not be altered, they will appear immutable to any change.

10. Costs based on a decrease in company activity

  • Avoidable: those that are clearly identifiable with a product or behavior. If the product or department is eliminated, they are suppressed.
  • Inevitable: Any basic and required spending to continue business activity.

Once identified, the next step is to analyze the impact on the generation of value in the company, its intensity and its effect on the organization’s results accounts, as well as the way to control them or the capacity to anticipate its evolution, among many other aspects.

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