Cost management is the process of managing, controlling, directing and understanding the costs in effective way in order to improve net income. One of the ways to better manage costs is to understand that there are many types of costs.
Types of cost
  • Direct cost - the cost that is directly traceable and considered the responsibility of a particular department of department manager. Most direct costs will change parallelly with the sales revenue. For this reason, they are considered to be controllable by the department to which they are charged.
  • Indirect cost - the cost that is not easily traceable and identified with a particular department or area and thus cannot be charged to ant specific department.
  • Controllable cost - the cost that controllable by someone like manager or supervisor.
  • Joint cost - a joint cost is one that is shared by, and thus the responsibility of, two or more departments or areas. For example in the case of waiter who serves foods and beverages in a restaurant. His labour is a joint cast and should be charged partly to food deparment and the remainder to the beverage department. The management will set up the sharing ratio or by some other appropriate method.
  • Discretionary cost - the cost that may or may not be incurred at sole discretion of a particular person.
  • Relevant cost - the cost that affects a decision.
  • Sunk cost - the cost that already incurred about nothing can be done. It can affect any future decisions.
  • Opportunity cost - the cost that we have to sacrifice after we taking another option. For example, if we have two dishes namely A and B to cook but unfortunately the time that we have only enough to cook one dish. If we choose to cook A , B will be our opportunity cost. If we choose to B, A will be our opportunity cost.


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