Know the difference between a cost and a variable expense.
In this article we explain in detail what the variable and fixed costs of a company are.
Accounting expenses are recorded in group 6 of the General Accounting Plan, and within this group, we can find fixed expenses and variable expenses .
Start of marked textTWEET IT! Do you know how to distinguish between variable and fixed expenses? Read this article to learn the difference.End of marked text
These expenses include supplies of merchandise and raw materials and other goods acquired by the company to resell them, either without altering their form and substance, or after djibouti email list subjecting them to industrial processes of adaptation, transformation or construction.
There are also other expenses for the year, such as the acquisition of services and consumable materials, changes in stock , amortization, financial expenses and other expenses, as well as losses for the year.
A company's expenses can be divided into:
Variable expenses , which vary depending on the business activity, such as purchases of merchandise.
Fixed expenses , the amount of which does not depend on sales or business activity, such as rent.
Difference between costs and variable expenses
Let's first look at the difference between expenses and costs in a practical way. A company records its salaries and wages in account 640 of the General Accounting Plan. This item constitutes an expense, which is transferred to the company's income statement, to determine, together with the rest of the income and expense items, the result for the year.
However, within the accounting account of salaries and wages, there are the salaries of all types of employees of the company, such as: workers, salespeople, administrators, and managers.
Workers, for example, will be part of the direct cost of production , so we can classify labor into direct and indirect costs. By making this distinction, we will be converting our spending on wages into different costs.
Depending on the level of activity of your business, variable expenses will be higher or lower.
In other words, expenses are the financial outlays necessary for the company's operating cycle . Costs are the part of the expenses directly or indirectly related to the production of goods or services.
Regarding the variability of expenses and costs, both will be variable if they can be adjusted based on the production or demand of your business.
Variable costs therefore depend on the level of activity .
The distinction between fixed and variable costs is essential to determine a company's break-even point . Remember that the break-even point is the point that determines the level of income needed to cover both fixed and variable costs.
What are fixed costs?
Fixed costs are those that, as their name indicates, cannot be stopped paying, and are therefore necessary simply by having a business.
Among the most common fixed costs we can find rent, insurance, certain taxes such as property tax, services such as consulting, etc.
The fact that expenses are fixed does not mean that they have to be monthly; some, such as insurance, can be paid once a year, or quarterly or half-yearly.
What are variable expenses?
Variable expenses are those that have a direct relationship with the volume of production or activity of a business or company.
The main variable expenses that can be found in a company are the following:
Purchase of raw materials . These are those which, through processing or transformation, are intended to form part of manufactured products.
Purchase of goods . These are goods acquired by the company and intended for sale without transformation.
