Different Types of Costs
1. Fixed Cost
 Fixed costs remain unchanged regardless of the production level within a specific time period.
 Components of fixed costs include:
 Rent:Â Charges for assets rented or leased by the company.
 Salaries:Â Regular payments to employees.
 Insurance Fees:Â Routine charges for insurance services.
 Property Tax:Â Taxes paid to the government based on asset value.
 Interest Payments:Â Charges related to loans (become fixed costs if interest rates or payment amounts are fixed).
 Depreciation:Â Cost to account for the gradual decrease in asset value over time.
 Utilities:Â Regular payments for services like electricity and gas.
2. Variable Cost
 Variable costs change based on production volume.
 Components of variable costs include:
 Direct Material: Raw materials used in the product.
 Direct Labor:Â Wages for workers (variable for temporary contracts, fixed for permanent workers).
 Billable Staff Wages:Â Payments based on billable hours (e.g., overtime work or temporary hiring).
 Commissions:Â Paid to motivate salespersons based on product sales.
 Production Supplies:Â Tools and supplies that vary with production levels.
 Shipping Cost:Â Varies with the number of units shipped.
3. Operating Cost
 Ongoing expenses associated with daily business operations.
4. Total Cost
 The sum of all costs incurred to achieve a specific output level.
An organization’s profit from the sale of its products and services is known as the sales margin. The equation for calculating the margin is:
Margin (%)= (Selling Price Cost)/ Selling Price
 To calculate the margin, we will enter the following formula in the cell E5:
=(D5C5)/D5
This calculates the margin percentage.
 Press Enter.
 Drag the Fill HandleÂ icon to apply the formula to other cells if needed.
General Formula to Add Margin to Cost
The general formula for adding a margin to cost is given below:
Cost After Adding Margin = (Cost)/(1Margin)
Using the above formula, you will be able to add margin to cost.
Example 1 – Adding Margin to Variable Cost
 Dataset Introduction:
 Imagine we have an Excel dataset with columns for Particulars, Cost, Margin, and Cost (After Adding Margin).
 Weâ€™ll use the SUM function to calculate total costs.
 Calculating Cost After Adding Margin:
 In cell E5, enter the formula:
=C5/(1D5)
This calculates the cost after adding the margin.

 Press Enter.

 Drag down the Fill Handle icon to apply the formula to other cells (if needed).
 Total Variable Cost Without Margin:
 In cell D13, enter the formula:
=SUM(C5:C10)
This gives the total variable cost without adding a margin.

 Press Enter.
 Total Variable Cost After Adding Margin:
 In cell D14, enter the formula:
=SUM(E5:E10)
This provides the total variable cost after adding a margin.

 Press Enter.
Example 2 – Adding Margin to Fixed Cost
 Calculating Cost After Adding Margin:
 Similar to the variable cost, enter the formula in cell E5:
=C5/(1D5)

 Press Enter.Â

 Drag down the Fill Handle icon.
 Total Fixed Cost Without Margin:
 In cell D14, enter the formula:
=SUM(C5:C11)
This gives the total fixed cost without adding a margin.

 Press Enter.
 Total Fixed Cost After Adding Margin:
 In cell D15, enter the formula:
=SUM(E5:E11)
This provides the total fixed cost after adding a margin.

 Press Enter.
Example 3 – Adding Margin to Operating Cost
 Dataset Introduction:
 Imagine we have an Excel dataset with columns for Items, Operating Cost, Margin, and Cost (After Adding Margin).
 Weâ€™ll use the SUM function to calculate total costs.
 Calculating Cost After Adding Margin:
 In cell E5, enter the formula:
=C5/(1D5)
This calculates the cost after adding the margin.

 Press Enter.

 Drag down the Fill Handle icon to apply the formula to other cells (if needed).
 Total Operating Cost Without Margin:
 In cell D13, enter the formula:
=SUM(C5:C10)
This gives the total operating cost without adding a margin.

 Press Enter.
 Total Operating Cost After Adding Margin:
 In cell D14, enter the formula:
=SUM(E5:E10)
This provides the total operating cost after adding a margin.

 Press Enter.
Example 4 – Adding Margin to Total Cost
 Calculating Cost After Adding Margin:
 Similar to the operating cost, enter the formula in cell
=C5/(1D5)

 Press Enter.

 Drag down the Fill HandleÂ icon.
 Total Cost Without Margin:
 In cell D13, enter the formula:
=SUM(C5:C7)
This gives the total cost without adding a margin.

 Press Enter.
 Total Cost After Adding Margin:
 In cell D14, enter the formula:
=SUM(E5:E7)
This provides the total cost after adding a margin.

 Press Enter.
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