- What are the default costs?
- What are the default costs for?
- Default costs and historical costs
- Other types of costs
We explain what the default costs are and what they are for. Also, differences with historical costs and other types of costs.
What are the default costs?
In accounting, it is known as predetermined costs to those that are calculated before the end of the product, so that they can be compared with costs real, which are calculated once the production cycle is over. They are commonly divided into:
- Estimated costs. What are those theoretical expectations of what is expected to be invested in production, considering each specific case;
- Standard costs. What are the average costs that a type of production process usually yields, at normal levels of efficiency, that is, a theoretical projection of what is expected.
It should be remembered that costs are all the different factors that intervene in the production cycle and make it possible, such as the raw material, direct labor, etc. Said costs can be classified according to their nature into various categories, of which only two are actual and predetermined.
Costs of all kinds are the object of study of analytical accounting or cost accounting, and in this the predetermined costs play a fundamental role, as premises to judge the production process, that is, as expectations.
What are the default costs for?
The default costs are, as we said before, an expectation. In this sense, they serve to counter the real costs and know how close the production cycle is going to plan. So it is possible take decisions and make adjustments, if necessary.
Default costs and historical costs
Historical costs are more related to real costs than to predetermined ones, insofar as they are a reflection of the productive trajectory of the company. business or organization.
As the actual costs, they are data obtained after the end of the productive process. But they differ in that they are compared with several years of similar processes, to obtain a history of their costs.
On the other hand, the predetermined costs are calculated before starting the production cycle, and therefore are a kind of elucubration or planning, instead of a historical look at the production process to which they refer.
Other types of costs
There are many ways to classify the costs of a business or organization. Next, we will see a couple of the most important:
- According to your identification within the company, we can talk about:
- Direct costs. They are those identifiable and quantifiable with respect to a specific area of the production process, or with respect to the finished products.
- Indirect costs. Those that, on the contrary, are not identifiable or quantifiable with respect to a specific area of the production process or its finished products.
- According to the function in which they are incurred, that is, to which part of the productive circuit generates them, we can speak of:
- Production costs. Which have to do with raw material, labor or charges-expenses direct from the factory.
- Distribution costs. Those that have to do with the process of transporting raw materials and other inputs to the factory, and then the products made to its marketing area.
- Administration costs. Those who detach from the management of the company, that is, of its management and maintenance.
- Financial costs. Which originate from obtaining resources (generally capitals) outside the company and necessary for its success.
- According to its behavior along the production chain, we can talk about:
- Fixed costs. Those that are constant within the productive circuit, regardless of the volume of operations carried out in a period of time.
- Variable costs. Those that fluctuate in some way depending on the volume of operations carried out, such as commissions, for example.
- Mixed costs. That bring together both fixed and variable elements.