Classification Of Costs – Fixed and Variable Costs

There are many facets of costing and breaking costing into these four categories helps in understanding

  • Fixed and Variable Costs
  • Direct and Indirect Costs

Costs are generally classified as to whether or not they vary with the quantity of parts being manufactured.  Many times this can be described as a Setup Cost because it does not vary with the quantity of parts being manufactured. In manufacturing this can be setup costs, travel costs, staging costs, etc.   The other type of fixed costs would be rental space,  insurance, administrative salaries which do not change based on the quantity of parts being produced.

Variable costs are more directly related to the quantity of product being produced like material and labor costs.  Both material and labor costs are increased with the amount of product being produced.  Other type of variable costs are electricity, consumables like welding supplies, heating and even possibly maintenance tasks that must take place every x parts being produced.

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Author: MIE Solutions

David Ferguson has over 20 years of experience in the manufacturing and fabrication industry. David Ferguson has been to over 100 manufacturing companies helping and guiding them to be more efficient and cost effective. As a child in Junior High School David Ferguson found a passion for the early computer systems, which would drive much of his future work. David Ferguson created and sold his first computer program, Arrow Data Systems, which was an early CAD/CAM system for the Apple 2e Computer. In the late 1980's after seeing his father (a sheet metal manufacturer) come home many nights estimating, David Ferguson saw an opportunity to optimize his effort through computer technology. Shortly thereafter the FabriTRAK Production Control package was developed. The Quote It! estimating package was developed out of the FabriTRAK system to become one of the leading sheet metal estimating packages in the world. David Ferguson has always had a passion for developing software to make the manufacturing process simpler, faster and more efficient. Prior to founding MIE Solutions David Ferguson worked with his father at Alco Sheet Metal, METALSOFT Inc. and was a consultant at Toyota Motors Sales. David Ferguson has his Masters in Computer Science and Mathematics from California State University, Long Beach.

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