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3 Examples of a Cost Structure

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A cost structure is a high level model of the costs of an industry, organization, business model or business unit. This typically includes a high level categorization of costs, the proportional size of each category and a designation of fixed or variable cost. Cost structures are typically used to plan a business and to communicate the costs of a strategy or investment. The following are illustrative examples of a cost structure.

Design

A graphics design firm has mostly fixed costs that do not vary significantly with each new client. Major fixed costs include wages & benefits, amortization of equipment, taxes, interest, rent, advertising, utilities, insurance, software, education and computing services. The firms only variable costs are office expenses such as printing materials for client presentations, travel and business services.

Manufacturing

A capital intensive manufacturing firm has significant amortization costs. Other fixed costs include taxes, wages & benefits, interest, rent, insurance, repairs & maintenance and information technology. Variable costs that are included in unit cost for each item manufactured include materials, parts, transportation, utilities and licensing fees.

Technology Startup

A technology startup currently has no variable costs or taxes because they have little revenue. Labor is categorized as research & development. Major fixed costs include bank charges, computing fees, travel, advertising & promotion, business services, software, education, rent and supplies. Most equipment and software is leased and the firm has little property or amortization. When the firm matures and obtains more revenue, its cost structure will change dramatically with variable costs becoming a component of spend.
Overview: Cost Structure
Type
Definition
A high level model of the costs of a business including categories, proportions and a designation of costs as fixed or variable.
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