Describe each cost classification and include two examples.
What will be an ideal response?
Costs can be classified as tangible or intangible, direct or indirect, fixed or variable, and developmental or operational.
Tangible costs have a specific dollar value. Examples of tangible costs include employee salaries and hardware. Intangible costs have a dollar value that cannot be calculated easily. Examples of intangible costs include customer dissatisfaction and reduced information availability. If an analyst examines an intangible cost carefully, it might be possible to estimate a dollar value. Direct costs are costs associated with the development of a specific system. Examples of direct costs include the salaries of project team members who develop the new system. In contrast, indirect costs, such as the monthly rental for a copy machine or insurance expense, cannot be attributed to the development of a particular system. Indirect costs also are called overhead expenses. Fixed costs are relatively constant and do not depend on a level of activity or effort. Fixed costs might include salaries and hardware rental charges. Variable costs, such as the costs of printer paper and supplies, depend on a level of activity. Developmental costs are incurred when the system first is developed or acquired, such as salaries. Operational costs are incurred after the system is implemented and continue while the system is in use. Examples include system maintenance, ongoing training, and annual software license fees.
Costs can fall into more than one category. For example, overtime pay for clerical help during the systems analysis phase might be developmental, variable, and direct. A monthly fee for maintaining the company’s Web site might be operational, fixed, and indirect.
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