Costs Classification

Fixed costs

• These do not alter with output
• Examples – rent, management salaries, rates
• Graphically fixed costs will always be illustrated by a horizontal line
• As output changes fixed costs stay the same

Variable costs

• Alter directly with the business’s level of output
• Examples – fuel, raw materials
• Graphically variable costs will always be a diagonal line from the origin
• As output changes variable alter directly

Total costs

• These are fixed and variable costs added together

Semi variable

• These have a fixed and a variable element

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Direct Costs

• Attributed to the production of a particular product and vary directly with output e.g direct materials and labour

Indirect Costs

• Can't be allocated to the production of a specific product and relate to the business as a whole e.g. indirect labour costs, administration