COST CLASSIFICATION

BY PRAJAKT WALE

CLASSIFICATION BASED ON
Nature

Functions
Traceability Variability

Controllability
Normality Relation with Accounting Period

Time
Planning and Control Association with the Product

By nature or element
Materials

Eg: Raw Materials, Spare Parts, Packing Material

Labour

Expenses

By functions
Production

- Includes construction and fabrication costs Selling - sales commissions , shopping bags and delivery charges Distribution - costs which are incurred on despatch of finished goods to the consumers. Administration - These expenses are related to the organization as a whole as opposed to an individual department; also referred to as "administrative cost." R&D

By traceability
Direct

the cost can be traced to the cost object and can be must be caused it. Eg: cost of Raw Materials purchased Direct Labour
Indirect

Eg: Salary of Factory Manager in a Soap Factory other overheads like electric power

By variability
Fixed

Eg: depreciation of plant and equipment

Variable

they vary directly with the amount of production Eg: Money was spent on labour, raw materials, power to run a factory, etc. in direct proportion to production.
Semi variable

Eg: Telephone charge has a Fixed cost and a variable cost

By controllability
Controllable - a controllable cost is one over which management have -

some degree of influence. They are internally influenced. Eg: supplier is charging higher prices on lines of stationery. The GM can meet with current suppliers and negotiate lower prices. Uncontrollable costs to business over which management cannot exert any influence. These are "imposed" on the business. Eg: For example, general manager of an operation get his new rates (property tax) assessment.

By normality
Normal - Normal Cost are the normal or regular costs which are

incurred in the normal conditions during the normal operations of the organization - Eg: repairs, maintenance, salaries paid to employees
Abnormal

-Abnormal Cost are the costs which are unusual or irregular which are not incurred due to abnormal situation s of the operations or productions Eg:destruction due to fire, shut down of machinery.

By Relation with accounting period

Capital - The cost incurred in purchasing an asset either to earn income or increasing earning capacity of business - Eg: Cost of a Rolling machine in a steel plant. Cost of Revenue - collective cost of manufacturing and distributing the products and services that a company sells. Cost of Revenue is found in the income statement under operating expenses. - Eg: operating costs related to product support service centres - costs incurred to drive traffic to our website and/or acquire online advertising space

By Time
Historical costs - It is the original monetary value of an economic item.

a company acquires an asset in year 1 for $100; Pre-determined costs Computed in advance taking into consideration the previous periods costs and the factors affecting such costs. Eg: the costs of heating and cooling a factory in Illinois will be highest in the winter and summer months and lowest in the spring. In order to avoid cost fluctuations; such changes are forecasted and predetermined.
Eg:

According to Planning and control

Budgeted Costs

- It represents estimate of Expenditure for various phases of Business Operations

Standard Costs

-The predetermined cost based on technical estimate for material, labour and overhead for a specified period of time.

Association With the product

Product Costs

- Costs that are traceable to the product and are included in inventory valuation.
Period Costs
- Costs incurred on basis of time - Eg: Rent, Salaries

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