Classification of Costs

Costs can be categorized into three types according to their nature, which are fixed costs, variable costs, and mixed costs.

1, fixed costs

Fixed cost characteristics: fixed costs are not affected by changes in the volume of business within a specific range of business, the total amount of a certain period of time can remain relatively stable costs. Classification of fixed costs: binding fixed costs, discretionary fixed costs.

Binding Fixed Costs

(1) Fixed costs that are the result of previous decisions that are now difficult to change, i.e., cannot be changed by current management decision-making actions.

(2) The only way to reduce binding fixed costs is to start by rationally utilizing operating capacity and reducing unit fixed costs. Discretionary fixed costs: fixed costs whose amount can be changed by current management decision actions.

2, variable costs

Characteristics of variable costs: within a specific range of business volume, the total amount of its business volume with the change in proportion to the change in unit variable costs remain unchanged. Classification of variable costs: technical variable costs, discretionary variable costs

3, mixed costs

Mixed cost characteristics: the total cost of business volume changes with the change in total cost, but not proportional. Classification of mixed costs: semi-variable costs, semi-fixed costs, deferred variable costs, curvilinear variable costs.

(1) Semi-variable costs

These are costs that increase proportionately with output from an initial base

(2) Step-up costs

Characteristics: Costs whose total cost increases in a stepwise manner with business volume. Also known as step-up costs or semi-fixed costs

(3)Deferred variable costs

The costs that remain stable in total within a certain range of business volume and begin to grow proportionally with business volume beyond a specific volume

(4)Curvilinear variable costs

Usually there is an unchanging initial volume, and the costs change gradually as the volume of business increases, but the relationship with the volume of business is nonlinear. The relationship between the volume of business is non-linear is divided into two categories of increasing curve cost and decreasing curve cost