Classification of Costs
LLearning Objectivesearning Objectives
• Cost Methods & Cost Techniques
• Costing Systems/Methods
• Cost Classification
• Cost Sheet
Cost Methods & Cost Techniques• Cost Methods• 1. Job Costing• 2. Contract• 3. Batch• 4.Process( continuous)• 5. Service( Operating)
• Cost Techniques• 1. CVP Analysis• 2. Standard Costing• 3. Budgetary Control• 4. ABC• 5. Relevant Costing• 6. Target Costing
• Historical • Absorption• Direct• Marginal• Standard• Uniform
Costing System Methods
COST CLASSIFICATION
Elements Behavior Functions Normality Control Decision Making
A: Elements
MATERIAL LABOUR EXPENSES
The ProductThe Product
DirectMaterials
DirectMaterials
DirectLaborDirectLabor
ManufacturingOverhead
ManufacturingOverhead
MATERIAL
• Direct: traceable to one particular process, job or product – identified with each unit of product• Example: manufacturing an apparel • Cloth, collar, buttons, cufflinks, thread Primary packing material (e.g., carton, wrapping,
cardboard, boxes, etc.)• Fuel, lubricating oil etc for operating & maintenance
of machine• Small tools• Materials used for repairs & maintenance
LABOUR
• Inspectors• Supervisors• Internal transport staff• Storekeeper, maintenance staff
EXPENSES
• Expenses leading to a job or contract• Traveling expenses for negotiation• Special pattern, design• Special tools for executing the contract
• Rent• Insurance• Canteen, hospital, power , lighting,
maintenance
B: Behaviour
Fixed in short run & long run
VariableVaries with volume and constant per unit
Semi-variableA cost could be variable for one level of activity whereas it couldbe fixed for another.
Not inherently fixed or variable
Many costs are semi-variable in nature
C: Functions
• Production Cost• Administration Cost• Selling Cost• Distribution Cost
D: Normality
• Normal• Abnormal
E: Control
• Controllable
• Uncontrollable
F: Decision Making
• Marginal vs. Absorption Costing (with fixed cost and without FC)• Sunk - irrelevant• Committed – pre committed• Opportunity • Incremental / Differential• Avoidable & Unavoidable• controllable / uncontrollable