Marginal costing

Cost Classification

• Fixed costs — remain constant regardless of output level (e.g. factory rent, supervisor salaries)
• Variable costs — change in direct proportion to output (e.g. raw materials, direct labour per unit)
• Semi-variable costs — have a fixed element plus a variable element (e.g. phone bill, electricity)
• Stepped costs — fixed until a capacity threshold, then jump to a higher level (e.g. extra factory premises)
• Direct costs — directly attributable to a cost unit; generally the same as variable costs
• Indirect costs — cannot be directly attributed to a cost unit; generally the same as fixed costs
• Marginal cost — the additional cost of producing one extra unit of output