Relevant cost and benefits

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Direct Costs – The costs that are identifiable with a product are called direct costs. Examples of direct cost are direct material, direct labor and direct expenses.

Indirect Costs – The costs that cannot be identifiable and traceable with a product are called indirect cost. Examples of indirect costs are indirect materials (raw materials and lubricants), indirect labor (salary of supervisor and other staff), and indirect expenses (rent and depreciation). Indirect costs are also referred to overheads divided accordingly to the products variation.

Variable Costs – Variable costs are kind of costs that are directly and proportionately with the output. These costs vary or ratio between the change in the cost and change in the level of output. Examples of variable cost are direct materials cost and direct labor cost is the costs that are generally variable costs.

Fixed Costs – Fixed costs are the cost that does not change in total for a given time period despite with fluctuations in output or volume of activity. Examples of fixed cost are taxes, advertising, insurance etc.

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