Cost Classification
What is Cost ?
Amount of resources given up in exchange for some goods or services.
C.I.M.A defines it as “Amount of expenditure (actual or notional )incurred on , or attributable to a given thing”
Scope Of Cost
The interpretation of ‘Cost’ depends on :-
The nature of the business or industry.
The context in which it is used.
WHY IS COST CLASSIFICATION NECESSARY ?
1. Budgeting
Enables the management to ascertain the cost of a project, programme etc
Exercise necessary control
Control can be effective only if the costs are known beforehand
2. Optimum Utilization Of Resources
Financial control for the efficient use of resources.
Cost Classification
Element-wise.
Behaviour-wise.
Functional-wise.
Identifiably with cost units.
Association with the product.
Controllability.
Normality.
Time.
Relevance to decision-making and control.
Classification : Element-wise
Material.
Expenses/Overheads.
Labour.
Material Cost
What is Material cost?
Labour Cost
What is Labour Cost ?
Expenses
What are Expenses ?
Overheads
What are overheads ?
Cost According To Functions
Production Cost
Administration Cost
Selling And Distribution Costs
Research And Development Cost
Pre-Production Cost
Total Fixed &Average Fixed Cost In Relation To Output
Total variable cost and Average Variable cost in relation to Output
Semi-Variable Cost
An Example :
Let us see how can the Cost Classification can be explained w.r.t an example.