Classify every cost with two separate questions. Does the total change when output changes (variable or fixed)? Can it be traced to one product (direct or indirect)?
This lesson is part of SPM Accounting cost and management accounting. The next lesson, contribution and break-even, uses these labels straight away.
What are the two tests?
Behaviour and traceability are separate questions, so a cost gets one label from each.
- Variable: the total rises and falls with units made or sold.
- Fixed: the total stays the same within the normal range of output.
- Direct: it can be traced to one product or job.
- Indirect: it is shared, so it cannot be traced to one product.
Worked example: Kedai Kek Sari
Kedai Kek Sari is an invented cake shop that makes only chocolate cakes. The costs below are for one month.
| Cost | Fixed or variable | Direct or indirect | Why |
|---|---|---|---|
| Flour and butter per cake | Variable | Direct | More cakes use more, and each cake carries its own |
| Gift box per cake | Variable | Direct | One box per cake sold |
| Baker’s salary RM2 400 | Fixed | Direct | Paid the same each month, and the baker only makes the cake |
| Shop rent RM1 800 | Fixed | Indirect | Does not change with cakes, and serves the whole shop |
| Delivery fuel | Variable | Indirect | Changes with orders, but cannot be tied to one product |
The mistake that swaps the two tests
It is easy to treat “fixed” and “indirect” as the same idea. The table breaks that shortcut twice.
The baker’s salary is fixed but direct. Delivery fuel is variable but indirect. Answer the two questions on two lines, and the swap cannot happen.
Check yourself
Classify each cost for a shop that makes only nasi lemak packets: (a) rice used per packet, (b) a licence of RM300 that the owner pays every month as a fixed amount, (c) a cook paid RM3 per packet made.
Answer
(a) Rice per packet: variable and direct. More packets use more rice, and it goes into the product.
(b) Licence fee: fixed and indirect. It stays RM300 whatever the output and is not traced to a packet.
(c) Cook paid per packet: variable and direct. The total changes with output and is tied to the product.
What to study next
Use these labels to work out contribution and break-even in calculating contribution and break-even point. Then test classification on the chapter practice set.
For a teacher who can question your labels one by one, see online one-to-one Accounting tuition.