fixed and variable cost element's cost

[Former Member]

hi,

i would like to clarify. need your kind advice.

1) can direct cost has both fixed and variable cost? can have example?

2) can indirect cost has both fixed and variable cost? can have example?

3) direct cost only happens in direct cost center and indirect cost only happens in indirect cost center?

4) can direct cost center assign to fixed cost element and variable cost element? Likewise, indirect cost center assign to fixed cost element and variable cost element?

thanks

[Former Member · Accepted solution]

Hi,

As per my understanding

Direct cost to a department could be variable or fixed.

Example: A supervisor in the X department would be a direct cost to the Dept A department. Since the X salary is likely to be the same amount each month regardless of the quantity of products manufactured, it is a fixed cost to the department. The supplies furnished to the X department will be a direct cost to the department, but will be a variable cost to the department if the total amount of supplies used in the department increases as the volume or activity in the department increases.

Indirect cost is the Power used to operate a production machine.

Example: The cost of the Power is variable because the total Power used is greater when more products are manufactured on the machine. Depreciation on the production machine is also an indirect product cost, except it is usually a fixed cost. That is, the machineu2019s total depreciation expense is the same each year regardless of volume produced on the machine.

As you can see, costs can be direct and indirect depending on the cost object: product, department. The cost is fixed if the total amount of the cost does not change as volume changes. If the total cost does change in proportion to the change in the activity or volume, it is a variable cost.