There are four types of cost in cost accounting: fixed cost, variable cost, direct cost and indirect cost. Further, output levels have an effect only on variable costs (e.g., labor costs). Variable costs depend on the level of production (raw materials). Direct can easily be traced to a product or service (e.g., direct employee). Indirect costs are not directly applied to a single product and include things such as salaries of administrative staff and utilities. These costs are understood, then, helping businesses with budgeting, pricing and unusually in profitability analysis, which results on more informed decision and financial control. Also read about objectives of cost accounting.
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