Accounting Chapter 1

Fixed Cost

A cost that stays consistent no matter how much more items are added to production.

Variable cost

A cost that matches 100% proportionality in scale. For example, if you produce 50 items in 2020, but produce 100 items in 2021, your variable costs must also double, no more no less.

Dierect costs

costs that can be easily tracked to an item. For example material and labor.

Indirect costs

Costs that are not easily traceable to the source. Such as a supervisor, or utility costs.

Point Costs

Costs associated with admin, not with a factory.

Product costs

Costs associated with the factory.

Realavent costs

Costs that are in the future and then you have a choice between. For example, choosing to rent out a room in a building rather than scale your operations is a choice, however calculating depreciation is something that has to be done no matter what.

Sunk costs

And cost that has already happened, must not be considered when making future decisions.

Is cutting out seemingly unprofitable ventures always the best choice?

No, sometimes you carry so many point costs, that simply removing a product will actually worsen the company. A lot of times your product is netting value, but it is not netting enough value to offset the point cost.