Formal Organization Models & Company Cost Classification

Formal Organization Models

Formal Organizations are intentionally structured groups within a company, placing each element in the most suitable position. Several models exist:

• Linear or Hierarchical Model

  Based on the principle of command, where all members report to a single superior. Advantages include simplicity and clear accountability. Disadvantages include excessive authority and potential lack of employee motivation.

• Functional Model

  Characterized by specialists focusing on specific tasks. Advantages include specialization, but disadvantages include potential conflicting orders from multiple heads.

• Advisory or Staff Model

  Features a central hierarchical structure supported by advisory departments. Advantages include specialist advice, but disadvantages include slow decision-making.

• Committee Model

  Involves cooperation among several people sharing authority and responsibility.

• Matrix Model

  A model used in industrial enterprises, combining organizational variables like roles and projects.

Classification of Costs in a Company

Companies incur costs during production, which sum up to the total production cost. These costs are divided into:

• Variable and Fixed Costs

  Fixed costs remain constant regardless of production volume. Variable costs change with production levels, increasing with higher production and decreasing with lower production (e.g., goods). The sum of fixed and variable costs equals the total production cost.

• Average Cost

  Also known as cost per unit, calculated by dividing the total cost by the number of units produced, indicating the average cost to produce one unit.

• Direct and Indirect Costs

  Direct costs are directly involved in product development (e.g., goods). Indirect costs do not directly affect product production but impact the company as a whole (e.g., energy consumption).