Business Cost Types Every Owner Should Understand

Have you considered where your business expenses fall on your Profit & Loss report? We’ll help you do just that!

Variable vs. Fixed Costs

A variable cost is an expense that changes based on the volume of production or sales, while a fixed cost is an expense that remains relatively constant regardless of production or sales.

Variable costs include

• Raw Materials

• Labor per unit

• Packaging Supplies

• Sales-based Commissions

Fixed Costs include

• Rent

• Salaries

• Insurance Premiums

• Property Taxes

Cost of Goods Sold vs. Overhead

Cost of Goods Sold includes all the expenses directly related to the production of goods or services. Sales - COGS = Gross Margin is a very helpful metric! Overhead expenses include the additional cost required to run your business.

Cost of Goods Sold include

• Raw Materials

• Packaging supplies

• Direct Labor

• Equipment Rental

Overhead expenses include

• Rent

• Utilities

• Insurance

• Administration

• Facility Maintenance

Understanding these principles helps you recognize the profitability of your products or services. Proper classification makes pricing, expense control, and financial decisions more straightforward. It’s a simple step that can have a big impact on your business’ financial health.

The Lakesite Accounting team is here to help with you your financials. Learn more by scheduling an initial consultation!