The cost of electricity is an indirect cost since it can't be tied back to the product or the specific machine. However, the cost of electricity is a variable cost since electricity usage increases with the number of products that are produced or manufactured.
Utilities– the cost of electricity, gas, phones, trash and sewer services, etc. Some utilities, such as electricity, may increase when production goes up. However, utilities are generally considered fixed costs, since the company must pay a minimum amount regardless of its output.
The two basic types of costs incurred by businesses are fixed and variable. Fixed costs do not vary with output, while variable costs do. Fixed costs are sometimes called overhead costs. They are incurred whether a firm manufactures 100 widgets or 1,000 widgets.
Key Takeaways. Operating expenses are the result of a business's normal operations, such as materials, labor, and machinery involved in production. Overhead expenses are what it costs to run the business, including rent, insurance, and utilities. Operating expenses are required to run the business and cannot be avoided ...
Examples of fixed costs are rent and lease costs, salaries, utility bills, insurance, and loan repayments. Some kinds of taxes, like business licenses, are also fixed costs.
Key Takeaways Fixed costs remain the same throughout a specific period. Variable costs can increase or decrease based on the output of the business. Examples of fixed costs include rent, taxes, and insurance. Examples of variable costs include credit card fees, direct labor, and commission.
Examples of variable costs are sales commissions, direct labor costs, cost of raw materials used in production, and utility costs. Variable costs are usually viewed as short-term costs as they can be adjusted quickly.
Indirect costs include costs which are frequently referred to as overhead expenses (for example, rent and utilities) and general and administrative expenses (for example, officers' salaries, accounting department costs and personnel department costs).
To sum up, direct costs are expenses that directly go into producing goods or providing services, while indirect costs are general business expenses that keep you operating.
Electricity is a cost that can vary from month to month and is a variable overhead cost unless it is part of the production process. Electricity that is involved in office lighting is overhead.
Overhead expenses include accounting fees, advertising, insurance, interest, legal fees, labor burden, rent, repairs, supplies, taxes, telephone bills, travel expenditures, and utilities. There are essentially two types of business overheads: administrative overheads and manufacturing overheads.
Direct costs are expenses that a company can easily connect to a specific “cost object,” which may be a product, department or project. This category can include software, equipment and raw materials. It can also include labor, assuming the labor is specific to the product, department or project.