Differentiate between each of the following type of costs: (i) Fixed costs and variable costs; (ii) Product costs and period costs; (iii) Relevant costs and irrelevant costs; (iv) Controllable costs and non-controllable costs.(8 marks)November 2022

(i) Fixed costs are costs that do not change with the level of production or sales, such as rent or salaries. Variable costs, on the other hand, are costs that vary with the level of production or sales, such as the cost of raw materials or utilities.

(ii) Product costs are costs that are directly associated with the production of goods, such as raw materials and direct labor. Period costs, on the other hand, are costs that are not directly associated with the production of goods, such as selling and administrative expenses.

(iii) Relevant costs are costs that are directly related to a specific decision or situation and will be affected by that decision. Irrelevant costs are costs that are not directly related to a specific decision or situation and will not be affected by that decision.

(iv) Controllable costs are costs that can be controlled by management through planning and decision making such as direct labor, direct materials and some overhead costs. Non-controllable costs are costs that cannot be controlled by management, such as rent or interest expenses.