Cost Analysis: Categorical Descriptions and a Case Thesis

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Cost Analysis: Categorical Descriptions and a Case Analysis

Variable Manufacturing Costs:

Costs associated with manufacturing that vary depending on the amount of output, such as raw materials and human resources, fall into this category. As these costs change based on production numbers, they are an essential part of an incremental cost analysis.

Fixed Manufacturing Costs:

Those costs associated with manufacturing that remain static regardless of the level of output belong to this category. Overhead, including some amount of energy consumption, leases, property taxes, and inspection fees are all fixed. As such, they have no need to be included in an incremental cost analysis.

Semi-Variable Manufacturing Costs:

Though a base amount of energy is needed to produce a single unit and probably won't vary much to produce 100, it will likely take more energy to make 10,000 units. This is an example of a semi-variable cost; a careful analysis of these costs is essential in an incremental analysis.

Total Production Costs:

The sum of the above costs equal the total manufacturing or production costs. The optimum total cost is that which maximizes profits, and has no bearing on an incremental analysis.

Direct Costs:

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Direct costs are those which can be attributed to a specific material, good, or service produced by a firm. The specific amount of labor necessary to produce a single unit of product, for example, would be a direct cost. As these costs directly relate to the product, they are important in an incremental analysis.

Indirect Costs:

Indirect costs are those that cannot be attributed directly and specifically to a product. Building maintenance and administrative costs are two examples; these costs are non-incremental.

Case Analysis: Laundry Detergent

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Cost Analysis: Categorical Descriptions and a Case.  (2009, December 6).  Retrieved September 25, 2021, from

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