UNLV Chapter 5 Cost Behavior and Profit Analysis LO5.1 Explain the two major classifications of costs. Costs are classified by their relationship to the sub-unit being analyzed and their relationship to the volume of services provided. LO5.2 Explain the difference between direct and indirect costs.
Direct costs are unique to the sub-unit being analyzed.
Indirect costs or overhead costs, are not unique to the sub-unit being analyzed. As one moves up the hierarchy of an organization, all costs eventually become direct. LO5.3 Explain the difference between fixed and variable costs. Fixed costs are more or less set over a pre-determined period. Variable costs increase as volume increases.