For the sake of your business progress, there’s no harm in taking a moment to understand the types of costs and their management.
If the expenditure of these costs is not controlled or difficult to control, then not the profit that will be obtained but the loss.
Then know, understand and manage these types of costs appropriately so that your business becomes truly efficient and profitable.
Types of Business Management Costs
There are 7 main types of costs in business, namely:
1. Controllable Cost
2. Costs that cannot be controlled (Uncontrollable Cost)
3. Programmed Cost
4. Commited Cost or Capacity Cost
5. Avoidable and Unavoidable Cost
6. Imputed Cost and Sunk Cost
7. Opportunity Cost (Opportunity Cost)
Let’s explore one by one …
# 1. Controllable Cost
Notions of controlled are costs that are at a certain management level or which can be directly influenced by certain managers.
Generally variable costs can be controlled and vice versa fixed costs.
But if it is associated with a cost center, then all costs that are the responsibility of the relevant center are controllable.
So that these costs can really be controlled, then as a guideline:
- If certain managers have authority in the input.
- If certain managers are also authorized or responsible for output.
- If the manager is responsible for certain processes.
Examples of Controllable costs:
For example the marketing department requires overtime work, so it must add overtime payment.
If this overtime payment can exceed the routine work capacity and the section manager in question must also be able to account for his failures.
# 2. Costs that cannot be controlled (Uncontrollable Cost)
Understanding the concept of costs that cannot be controlled are costs that are not responsible and cannot be influenced by certain centers.
Examples of uncontrollable costs:
Here we provide an example of marketing costs.
And one of which includes marketing costs, is the cost of labor marketing department, in this example, these costs are determined by the directors.
And if the salary does not meet employee motivation, resulting in a decrease in production.
So the marketing manager cannot be held responsible for lack of motivation or decreased production.
What about advertising costs? First understand the concept and understanding of advertising costs, whether it is the responsibility and determined by the marketing manager or not.
# 3. Programmed Cost
This cost concept is also called discretionary cost or managed cost, which is the nature of short-term costs, which means sometimes there is and sometimes does not exist.
These changes can be small or increased or do not need to do what has been budgeted, if the conditions are so.
Examples of programmed fees:
Research and development promotion costs.
This large fee can be charged at the same time in the expense year as an income expense, or amortized several years, depending on company policy.
# 4. Committed Cost or Capacity Cost
Understanding the commited cost or often also referred to as the cost of preparing or the cost of guard (stand by cost) is:
“All costs incurred in order to maintain the capacity or capability of the organization in production, marketing and administrative activities”
Expense costs are regularly charged to the income statement.
Examples of these costs are depreciation costs of fixed assets that are periodically (monthly and yearly) always there for the life of the fixed assets.
Without seeing the company is receding or progressing and can not be eliminated or eliminated.
# 5. Avoidable and Unavoidable Cost
The concept of avoidable costs or costs unavoidable is a cost that is fixed and is borne alone by a certain part or costs that will not continue.
While the unavoidable cost is the opposite, that is the cost that is borne by an organization.
Or costs that are formulated as facilities or services that are shared based on a certain burden using the allocation method.
# 6. Imputed Cost and Sunk Cost
The definition of imputed cost is the cost that states the purchase price or value of a wealth which is measured by the value of its use.
These costs do not involve actual cash expenditures and are also not recorded in company books, especially in private companies.
For example, the salary of the owner of the company or rent the property of the company itself.
There are reasons that do not allow to include these costs, so in making a comparison of these costs need to be considered.
While sunk costs are costs that in certain situations cannot be recovered.
Expenditures made in the past, all of them cannot be recovered.
An example of a sunk cost is when a company wants to make a decision about replacing old assets with new ones.
The value of old assets or book value after depreciation of old assets is a sunk cost and is not relevant to be considered in the replacement.
Because the value is still present or remains a loss or expense, which is clearly fixed as a cost whether the asset is USED or REPLACED.
# 7. Opportunity Cost
Understanding opportunity costs with all the ins and outs and examples can be read in: calculation of opportunity costs
Please just glide there, so that your understanding of the types of costs becomes complete.
Thus the discussion of 7 types of costs that you need to know so that your business management becomes efficient and its growth continues to skyrocket.