Tangible and Intangible Costs and Benefits

2021-05-18 17:33:06
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Tangible costs are the quantifiable and expected in running of a business. They include things that can be bought directly by a business. Such like space, materials, and labor. Tangible costs are things that checks can be written for by the business such as commercial insurance, transportation, and medical benefits of an employee, operational inputs, leases, wages, and salaries (Johanson & Mattsson, 2015).. In such terms, without spending on tangible costs the materials tracking system cannot produce products that are quality or conduct a business. Therefore, the management focuses on tangible costs manipulation, as they are easily quantifiable. Intangible costs can be crucial for failure or success of business, real but hard to measure. They include loss of goodwill, decrease in employee morale, and lost productivity, customer disappointment, or unfavorable working conditions. Intangible costs are not easily quantifiable. Such costs are not predicted often even if their source is identifiable. They occur when new policies and practices have been put in place like a cut in employee benefits or staffing levels. As soon as managers observe a pattern of loss, they try to estimate intangible costs. In that case, this estimate act as a decision basis to either continue or change a practice that causes customers or employee frustration.

An objective statement is a completely unbiased statement. It is verifiable by performing mathematical or looking up facts. Objective has the basis of reality and cannot be verified by use of concrete figures and facts.

Subjective is used when nothing intangible is at stake.

Direct costs can be traced accurately with little effort to a cost object. The classification of cost as either indirect or direct is done by taking perspective of cost object as the direct cost benefits it typically. A particular cost might be indirect to the cost object but it can be direct for another. Direct costs most of them are variable, which is not, the same case always. Such direct costs include costs of plane parts and wages incurred during production, and salary of the supervisor. Direct costs are expenses that are easily connected to cost objects that are specific by a company. Such cost objects like a project, department, or product( Ambec, Cohen, Elgie, & Lanoie,2013). They include items like raw materials, labor, equipment, and software. The direct materials and labor that created a specific product constitute the major portion of the direct cost. Typically companies track the finished raw materials cost as a direct cost. In such terms they track these costs using two popular ways which include first in, first out (FIFO) last in, first out (LIFO). Indirect costs cannot be attributed accurately to specific cost objects. Indirect costs benefits cost objects that are multiple and cannot be traced accurately to individual departments, activities, or products. Indirect costs are known as real costs of doing business. They go past the costs that are used to create a particular product including the entire company-maintaining price. After computing direct costs overhead or indirect cost are left. The companys supplies and materials needed for the operations of day-to-day are the best examples of indirect costs. Such as cell phones, desktop computers, rental of office equipment, utilities, and cleaning supplies. Indirect labor costs are not assigned to any particular product but they make airplane parts production possible.

Controllable costs are costs whose decisions reside on one person to incur it. They are costs that are short term altered. In that regard, if the decision involves many people instead then from the perspective of any person the cost is not controllable. If the third party imposes cost to an organization then it is considered as non-controllable. Examples of controllable costs include direct materials, employee compensation, subscription, dues, and office supplies. Controllable costs are a reverse of fixed costs. Non-controllable costs are expenses that a manager cannot control because has no authority or power to influence (Ostrenga, 1990). Some department managers based on the hierarchy of the company might have costs to be paid out but they have control over them. Resulting to the officers or management above the dictates these costs and hand them the pecking order.

Fixed costs can only be altered in the long-term. Examples are insurance and rent supervisors' salaries and depreciation. Fixed cost is one type of operation cost .it does not vary with output but they remain the same and they are overhead expenses. Variable costs vary in respect with the output. They are part of operation costs, which keeps on fluctuating as the output changes (Carraro, Katsoulacos, & Xepapadeas, 2013). Material and labor costs in a production facility are variable costs that keep on increasing as production volume increases. Therefore, material and labor costs vary with the volume of output.

In practical instances that are, numerous in manufacturing probability apply. Probability determines the ratio of the cost benefit of a manufacturing company. The manufacturing firms to determine the financial success possibilities of a new product also use it. It is hard to measure the ratio of the cost benefit in certain conditions. It is also hard to determine whether the products to produced will be defective or not.

 

References

Johanson, J., & Mattsson, L. G. (2015). Internationalisation in industrial systemsa network approach. In Knowledge, Networks and Power (pp. 111-132). Palgrave Macmillan UK.

Ambec, S., Cohen, M. A., Elgie, S., & Lanoie, P. (2013). The Porter hypothesis at 20: can environmental regulation enhance innovation and competitiveness?. Review of Environmental Economics and Policy, 7(1), 2-22.

Ostrenga, M. R. (1990). Activities: The focal point of total cost management. Management Accounting, 71(8), 42-49.

Carraro, C., Katsoulacos, Y., & Xepapadeas, A. (Eds.). (2013). Environmental policy and market structure (Vol. 4). Springer Science & Business Media.

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