Cost Descriptors

Abstract

As a Human Resource manager for a manufacturing company, it is their job to understand the current budget and how cost affects this budget. Cost can be defined as an amount paid or required in payment for a purchase. Cost can be classified in many ways: fixed, variable, direct, indirect and sunk just to name a few. Fixed costs were mostly associated with administrative cost. Fixed costs include items like rent, utilities and insurance. Variable cost are cost that vary directly with the number of products produced (Ward, 2006). Direct costs are identified with a specific product, department or activity. Indirect cost can not be identified with a specific product.

Cost Descriptors

As a Human Resource manager for a manufacturing company, it is their job to understand the current budget and how cost affects this budget. Cost can be defined as an amount paid or required in payment for a purchase. Costs are decreases in assets or increases in liabilities. Accounting is concerned with providing detailed information about the cost of producing something and carrying out business operations. Manufacturing cost can include fixed, variable, overhead, direct and indirect cost.

Originally cost were considered to be fixed, because some cost tended to always stay the same. Fixed cost were mostly associated with administrative cost. Fixed cost include items like rent, utilities and insurance. For example a manufacture wants to lease a building to make their product. The manufacture must pay a monthly lease fee of five hundred dollars a month. The space for this manufacture is fixed, because the rent amount stays the same month after month. Fixed cost are cost the must be paid whether of not any units are produced (Ward, 2006). In contrast to fixed cost there are variable costs. Variable cost are cost that vary directly with the number of products produced (Ward, 2006). The cost of materials, labor and overhead use to make a product are not always the same. For example, variable costs are $1.30 for materials, $3.00 for labor and $ .50 for overhead, for a total cost of $4.80 to make that product. Combined with fixed cost, variable cost make up the total cost of production (Investorwords.com, 2006). Variable cost naturally rise and fall. Mixed cost are cost that move up or down depending on volume of production or sale, this movement does not move in proportion with production or sales. Mixed cost are made form elements of fixed and variable cost. Supervision and inspection cost are considered mixed cost.

HR Managers also have to be aware of direct and indirect cost. Cost that are directly attributed to the manufacturing of a product are direct cost. Direct cost are identified with a specific product, department or activity. For example the cost of material and labor to manufacture a widget is identified as a direct cost of that physical product. Examples of direct cost are direct materials, direct labor and direct expenses. Direct cost that are grouped together are called prime cost. Indirect cost can not be identified with a specific product. Taxes, depreciation of plant and machinery and factory rent are common indirect cost. Indirect cost include all the remaining cost after production is complete. A cost that has been incurred and cannot be reversed is a sunk cost (Investopedia.com, 2006). Cost of manufacturing machinery and