How to know when to use (fixed & variable cost) vs. (direct & indirect cost)?

fixed costs profitability profitability analysis variable costs
New answer on Jul 31, 2021
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Anonymous A asked on Jul 30, 2021

May I know, how can I learn to know when to use (fixed & variable cost) vs. (direct & indirect cost) under the cost branch?

Thank you so much

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Ian
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replied on Jul 30, 2021
BCG | 100% personal interview success rate (8/8) and 95% candidate success rate | Personalized interview prep

Hi there,

Ultimately, it depends on the case. Moreover, I personally actually don't like either..."I'd like to segment by FC and VC" and "I'd like to segment by direct and indirect costs" is just incredibly generic and adds no value!

Rather, break it down by what matters. Thematically, what major costs are here and what's a systematic approach to looking at costs.

Some helpful related Q&As:

https://www.preplounge.com/en/consulting-forum/direct-and-indirect-instead-of-fixed-and-variable-6272

https://www.preplounge.com/en/consulting-forum/inventory-costs-how-to-segment-6861

https://www.preplounge.com/en/consulting-forum/structure-breakdown-for-costs-7963

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Francesco
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replied on Jul 31, 2021
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Hi there,

You may use any of the two as they are both a MECE way to structure costs. In the end, you should use the one that helps you to brainstorm more easily the costs for a particular case, as after that division you will have to identify costs for each category.

Best,

Francesco

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Ian gave the best answer

Ian

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