Proportional costs
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IGC-DEFINITION
Proportional costs
Proportional costs are costs that arise because a product is manufactured or a service delivered. They are determined by the structure of the cost center service or of the product (bills of material, work plans, recipes). In the cost plan it is determined, which part of the costs will behave proportionally. If the actual output is lower than planned output, this means that proportional costs are converted into structure costs, because they cannot ‘slip into’ the products. In the case that the output is higher than planned, the reverse happens and the structure costs are converted into proportional costs, which means, that an increased use of available capacity is made to achieve productive output.
Proportional costs are a synonym for variable costs. However, controllers would be well advised not to use the term variable costs since the pairs of terms ‘controllable costs / imputed costs’ and product costs / structure costs are very often misleading or based on a wrong understanding, which leads to wrong decisions and communication barriers.
from: IGC-Controller-Wörterbuch, International Group of Controlling (Hrsg.)
