Businesses incur various costs in order to operate and produce goods or services. There are different types of costs that must be classified including direct costs, indirect costs, fixed costs, and variable costs. Direct costs are easily traceable to a specific product or service, like materials and labor. Indirect costs are harder to assign and relate more to administration. Fixed costs do not change with production levels, such as rent, while variable costs fluctuate depending on output, such as raw materials. Proper classification of costs allows businesses to analyze performance and make informed decisions.

1. BY: AURA VILLA
TUTOR: MSC. MARICELA MADRID

2. COSTS:
 Costs are outlays or expenses for which we get something in
return.
 A business needs money to pay for the resources it uses and in
order to pay for it, the business needs to sell enough of its goods or
in other cases provide enough of its services.

3. Types of costs
 A business has many different costs, from paying for raw materials
through to paying the rent or the electrical bill. By careful classification of
these costs a business can analyze its performance and make better-
informed decisions.
Types of cost
Variable
Fixed
Direct
Indirect

4.  To obtain an accurate costing for any product or service, a business
basically needs to identify its direct costs, such as material and labour and
its overheads, such as rent, and add to them any indirect costs, such as
administration, which may apply to that particular product or service.
1. Direct costs: Are simple to determine and are directly incurred in the
production process. They are directly connected with a business’ goods and
services, such as components and raw materials.
2. Indirect costs: Are not directly incurred in the production process, this
means that are harder to allocate, since they are associated more with the
administration and general running of the business.

5. 3. Fixed cost: They do not change
in relation how much output a
business produces. Example:
- Rent
- business-s license
- wages
- insurance
4. Variable costs: These costs vary
according to the production levels
change or in other words the more
goods or services produced the
higher amounts to be paid .
Example:
- Raw materials
- Commission paid to sales people
based on how much they sell.
- Labor used in the production
process.