Cost structure

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Cost structure
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Costs structure makes possible presenting of individual cost constituent. It shows percentage share of each constituent in comparison to the whole value of incurred costs (Kaplan R.S. 2013, s. 65.).

Costs are classified to the economics category, including the wear of production factors, used in fundamental company activity i.e. procurement, production, sale, logistics. Among the production factors, the value of human work, value of supplies, machines and materials being in use might be distinguished. The activities not classified to the fundamental costs category i.e. fortuitous events, suspension of operation on certain time period, are classified as extraordinary losses (Kaplan R.S. 2013, s. 65.).

Costs clasification

Costs structure might be divided into nine categories:

Costs by type

Among costs by type we can distinguish (Stiglitz J.E. 2005, s.138):

  • materials and energy wear – all of the resources used in production;
  • amortization – covers costs of tangible and intangible assets wear and legal values, poses kind of sinking;
  • salaries – payment for performed job;
  • taxes and fees - costs endured by company comprising real estate taxes, taxes from means of transport, VAT for entities which are not VAT tax-payers;
  • social insurances and other benefits – costs for employer comprising i.e. health insurance contribution, costs of training courses, furlough services;
  • the remaining costs – particular kind of costs which is not subdivided to above mentioned types, i.e. costs of promotion and advertising, costs of employee business trips.

Costs connected with the place od arising

Among costs connected with the place of arising we can distinguish (Stiglitz J.E. 2005, s.147):

  • costs of fundamental activity – covers primitive output activity as well as costs of materials directly used for production, wear of machines and specialistic tools;
  • costs of subsidiary activity – poses association of direct and departmental costs comprising entities not being a direct activity, concerning an additional costs i.e. transport, canteen for employees etc.;
  • departmental costs – covers indirect costs, internal transport, costs of cleanup, amortization and renovation, machines and tools, department guidance, worn-out parts;
  • management costs – covers costs concerning administration of specific unit, includes office costs, taxes, business trips, employee insurance, post services;
  • acquisition costs – the account for companies not underlined to settlement of purchasing costs in time;
  • disposal costs – covers costs incurred during sale and distribution of products, semi-finished products, materials. The costs of advertising, costs of commission as well as excise from sold articles are also included.

Kind of enterprise operation

Depending on kind of enterprise operation we can distinguish (Stiglitz J.E. 2005, s.141):

  • costs of financial operation – costs not directly connected with the size of production;
  • costs of operational activity – costs directly connected with the size of production;
  • costs connected with particular funds – concerning costs for creating special funds for employees, i.e. healthful funds;
  • costs connected with construction of tangible assets – covers costs allocated for tangible assets, i.e. buildings, premises, real estates, means of transport.

The aim of costs incur

Depending on the aim of costs incur we can distinguish (Kaplan R.S. 2013, s. 83.):

  • costs of acquisition – concerning purchases directly connected with usage and exploit of assets in the enterprise;
  • costs of production – covers the acquisition of materials, semi-finished products, employees salary, amortization of machines and tools;
  • costs of management – concern all of the costs incurred in relation to run and administration of enterprise;
  • disposal costs – all of the costs connected with products disposal, covering time between its dispatch from magazine to the date of sale, comprising also costs of advertisement and promotion.

Costs connected with enterprise operation

Among costs connected with enterprise operation we can distinguish (Stiglitz J.E. 2005, s.159):

  • financial costs – costs having an reflection in operations related to investment and financial activity;
  • costs of normal operational activity – totality of costs incurring in course of running a business;
  • remaining operational costs – costs without a direct effect on operation, but poses indirect point. Among remaining operational costs it is possible to distinguish, i.e. costs of social activity, potential currency rates in the moment of transaction, penalties imposed on enterprise.

The way of costs reaction on production size changes

Taking into account the way of costs reaction on production size changes we can distinguish (Stiglitz J.E. 2005, s.135):

  • fixed cost – the size of production does not affect on the size of this type of costs, i.e. rental charge, administration charge etc.;
  • variable costs – the size of production affects on the size of this type of costs.

The way of costs impact on products

Depending on the way of costs impact on products we can distinguish (Kaplan R.S. 2013, s. 93.):

  • direct costs – tight connection with a conducted business activity, i.e. costs of participatory materials, wear of machines and parts, salary for direct employees;
  • indirect costs – no tight connection with a production process of specific article.

The meaning of costs during economic decisions-making

Depending on the meaning of costs during economic decisions-making we can distinguish (Stiglitz J.E. 2005, s.163):

  • decision-making costs (essential costs) – specific, appointed resources, used in order to conduct activity by entity, strictly connected with undertaken decision;
  • non decision-making costs (non-essential costs) – value of costs incurred by enterprise regardless of undertaken decisions.

The possibility of control by directors

Depending on the possibility of control by directors we can distinguish (Stiglitz J.E. 2005, s.167):

  • controlled costs – the possibility of regulation and proper management of costs by enterprise;
  • uncontrolled costs – costs which the enterprise is not affecting.

Possible forms of costs structure presentation

Costs structure and possibilities of performing an analysis of this structure are presented in the form of (Cokins G. 2001, s. 354.):

  • a. financial statement – related to costs of fundamental operational activity including incurred operational and financial costs;
  • b. internal reports – reports which do not constitute an component of financial coverage.


  • Cokins G. (2001). Activity-Based Cost Management, John Wiley & Sons, Inc., London, s. 354.
  • Dury C. (2008). Management and Cost Accounting, South Western Centage Learning, London.
  • Horngren Ch. T. (2012). Cost Accounting. A Managerial Emphasis, Prentice Hall, Boston.
  • Kaplan R.S. (2013). Advanced Management Accounting: Pearson New International Edition, Pearson Education Limited, Pearson, s. 65-93.
  • Stiglitz J.E. (2005). Principles of Microeconomics, W.W. Norton&Company, New York, London, s. 135-167.
  • Walther L.M. (2009). Managerial and Cost Accounting, CreateSpace Independent Publishing Platform, California.

Author: Justyna Zalewska