Fixed vs. Variable Costs: Another Way to Segregate Costs

Another way to segregate costs is fixed versus variable costs, including mixed and step costs, which is covered here. Another way is direct versus indirect costs, which are covered separately. A third way is the segregation of cost in financial accounting for financial reporting purposes by functional categories such as separating rent expense from utilities expense from interest expense, which is not covered in managerial accounting. An important point is that there are different segregations of the same cost for different purposes.

Note that these categories are not mutually exclusive. For example, a fixed cost can be direct or indirect and a variable cost can be direct or indirect.

Segregating Costs Overview

These methods used to segregate costs apply to all kinds of organizations (as well as to individuals such as you). Any organization that incurs costs—whether it is in manufacturing, merchandising, service, not-for-profit, or government—can segregate its costs.

All organizations are likely to have some costs that are fixed and some that are variable with respect to a particular cost object.

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