Costs

1. 11
Assignment on
Discipline: B.S (Banking & Finance)
Semester: IV
Roll no: BSBF12-41
Submitted to: Sir Hayat Qazi
Submitted by: M Owais Khan
Department of Management
Sciences,
Abdul Wali Khan University,
Mardan
Fixed, Variable, Direct, Indirect Costs

2. 2
COST & MANAGEMENT ACCOUNTING
Before going to attempt the assignment, first I have to define it, so that one can easily
understand.
Cost
Something that is lost, damaged, or given up in order to achieve or get something
It is a resource sacrificed or forgone to achieve organizational objective.
After accumulating the cost, there are two types of costs which show different behavior.
VARIABLE COST
A cost that varies with the level of outputs
It is the change in total cost in proportion to the change in the level of activity of output.
Fixed Cost
It remains unchanged in total over a certain period of time despite of change in the level
of activity of output.
Fixed costs are expenses that have to be paid by a company, independent of any business
activity. It is one of the two components of the total cost of a good or service, along with
variable cost.
Direct Cost:
A cost that is directly assign to a cost object
Indirect Costs:
A cost that cannot be directly assign to a cost object

3. 3
For applying examples I selected SUZUKI Company.
Ten (10) examples of variables costs along with their cost
drivers are given below;
It is related with the production
 . Brakes ( per brake set )
 . Steering ( per unit )
 . Lights ( Per car light set )
 . Center arm set ( Per set )
 . Deluxe Carpet Mat Set ( per carpet set )
 . Door Entry Sill Guard Set ( per car set )
 . Fog Lamp Bezels ( twin light set )
 . Multi Roof Rack ( Racks per set )
 . Reversing Sensors ( sensor per car )
 . Service Kits ( Kit per car )
Ten (10) examples of fixed costs are along with cost drivers are
given below;
It has no effect with the increase or decrease in the production
 . Insurance, this is a periodic charge under an issuance contract of SUZUKI Company.
. Its cost driver is the range of payment to insurance company
 . Depreciation, It is the gradual charging to expense of the cost of tangible assets by the
. SUZUKI Company
. Its cost driver is time and value of assets

4. 4
 . Interest Expense, this is the cost of funds loaned to SUZUKI Company
. Its cost driver is interest rate
 . Property Tax, this is a tax charged to a SUZUKI Company by the government on its
. assets
. Its cost driver is the value of assets
 . Rent is a periodic charge payable to landlord but SUZUKI Company has its own land
. Its cost driver is time (per month etc)
 . Salaries, It is a fixed amount paid to employees irrespective to its working hours
. Its cost driver is Pay-Scale of the company
 . Advertisement Expense, it is payable per month depend on contract
 . Its cost driver is time (per month etc)
 . Security Expense, It is payable to third party contractor who provide security officers
. Its cost driver is time (per day etc)
 . Amortization, it is the gradual charging to expense of the cost of intangible assets by
. the SUZUKI Company
 . Its cost driver is time and value of assets
 . Food expenses can also be added in fixed cost because it has no effect with production
. Its cost driver may be, “per head” in a company

5. 5
Ten (10) examples of direct cost are given below;
These are the costs which can be directly assign to cost object
 Cost of project staff for a project
 Consultants
 Project supplies
 Publications for the project
 Supplies for the project
 Electricity consumed by the machine separately
 Salaries of employees of a HR department etc
 Advertisement expense of a separate brand of SUZUKI Company
 Sales tax on separate brand of SUZUKI Company
 Interest expense by the money landed for producing a new brand
Ten (10) examples of indirect cost are given below;
These are the costs which cannot be directly assign to object
 Electricity consumed by the whole company, the cost object is departments
 Interest on money borrowed by company, cost object is a single project
 Rent expense of the company when cost object is departments
 Employee salaries of all staff, cost object is manager rank
 Cost of advertisements, cost object is one brand of company
 Supplies of company, cost object is a single brand
 Security expense of the company, cost object is swift manufacturing site
 Insurance expense of the company, cost object is one brand of company
 Stationary expense of company, cost object is HR department
 Per month food expenses of SUZUKI Company, cost object is Workers

6. 6
Ten (10) examples of cost drivers are given below;
 “No. of machine operate” is the cost driver for calculating electricity rate per machine
operation.
 For calculating, storage cost per batch, cost driver will be “no. of batches” of material.
 For test and inspections Specific experts are appointed for this. They consume money in
the form of salary, electricity, travel and other depreciation of their specific equipment. It
can be calculated on the basis of no. of test. So, “no. of tests” is cost driver
 For the cost tires, “no. of tires” no. of tires will be the cost driver
 “No. of years” will be used as a cost driver during depreciation
 For setting up a company with all machines, the cost driver is “no. of machine”
 For electricity expense the cost driver is” unit”
 “Per sign board” will be the cost driver of advertisements
 Cost driver for salaries of workers are “hours”
 Cost driver for food is “per head”