Costs are categorized I accordance to the variations in the output, the volume and the changes in the activities as variable cost fixed cost and mixed cost.
These are costs that do not change with the changes in the cost of activities (Bozec & Bozec , 2010). These costs include the example of rent. For instance, a business set up which deals with sales of commodities like shoes or mobile phones, whether in a certain month there is an increase or decrease in the total number of sales, the rent for the building will just still remain constant. The fixed costs can be controlled by cutting the hidden costs and the cost of services like jobs and advertisement. They assist the management to develop a financial model to predict the future costs hence the financial muscle of a business in the future.
These refers to the costs which varies with the level of activities or rather the with the nature for production. For example they include the cost of raw materials which implies that an increase in the level of production results to a significant increase in the usage of the raw materials hence the costs of the raw materials will also rise ant the vice versa is also true for a decrease in the level of production. Variable costs can be controlled by controlling the level of expenses and by a constant monitoring of costs. This can help the management in planning for the future of the business based on the present trends in costs (Küçükaydin et al, 2011).
This refers to the costs that has b both the characteristics of variable and fixed costs. An example of a mixed costs includes the cost of rent and that of electricity bills. An increase in the consumption of electric power results to a significant increase in the cost of rent due to the increase in the value of the bill. This costs can be controlled by cutting the overhead costs of production by employing measure that are more reasonable and cheaper in terms of economic value (Oberholzer & Ziemmerink, 2004). Tis therefore can help the management to develop a financial balancing system by using a balance sheet or an income statement to determine the loss/ profit value of the business.