Flexible cost

A flexible cost is a cost that is easily altered or avoided by the person bearing the cost. Most of the corporate expenses as well as individual expenses are actually flexible in nature. These flexible costs may be manipulated in amount or eliminated by not engaging in the activity that incurred the expense.

The flexible costs may or may not be associated with the necessities. The flexible costs project the expenses based on the various levels of production. It represents how the costs vary with different rates of output or at different levels of sales volume. The flexible cost is based on various levels of activity. It is a useful tool l for comparing the actual cost incurred to the cost allowable for the activity level achieved. The flexible costs show the costs of the flexible resources. They are the direct costs that are incurred in producing a product or a service. Flexible costs are costs that vary in proportion to the amount used.

The flexible costs include the costs that are directly involved in making or manufacturing of the product or service. Direct materials include costs such as raw materials, standard and specialized parts, and sub-assemblies required to assemble or manufacture a complete product. Direct material costs are associated with a specific product, cost center, or work-order. Direct labor includes costs or expenses which are paid to the employers or workers who are directly involved in the making of a product. Direct labor includes costs such as the wages of the assembly workers in an assembly line. Direct expenses are the expenses which can be identified to a particular cost centre and hence directly charged to the centre are known as direct expenses.

Questions

• What is a flexible cost?
• What costs are the flexible costs in the firm? Explain with examples.