Cost components are different types of costs that make up the value of an inventory increase or decrease.

The following table shows the different cost components and any subordinate cost components that they consist of.

Cost component Subordinate cost component Description

Direct cost

Unit cost (direct purchase price)

Cost that can be traced to a cost object.

Freight cost (item charge)

Insurance cost (item charge)

Indirect cost

Cost that cannot be traced to a cost object.


Purchase variance

The difference between actual and standard costs, which is only posted for items using the Standard costing method.

Material variance

Capacity variance

Subcontracted variance

Capacity overhead variance

Manufacturing overhead variance


A depreciation or appreciation of the current inventory value.


Residuals caused by the way in which valuation of inventory decreases are calculated.

Freight and insurance costs are item charges that can be added to an itemís cost at any time. When you run the Adjust Cost - Item Entries batch job, the value of any related inventory decreases are updated accordingly.

See Also