COST CLASSIFICATION

1. Classification of
Costs

2. LLearning Objectivesearning Objectives
• Cost Methods & Cost Techniques
• Costing Systems/Methods
• Cost Classification
• Cost Sheet

3. 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

4. • Historical
• Absorption
• Direct
• Marginal
• Standard
• Uniform
Costing System Methods

5. COST CLASSIFICATION
 Elements
 Behavior
 Functions
 Normality
 Control
 Decision Making

6. A: Elements
MATERIAL LABOUR EXPENSES
The ProductThe Product
Direct
Materials
Direct
Materials
Direct
Labor
Direct
Labor
Manufacturing
Overhead
Manufacturing
Overhead

7. 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

8. LABOUR
• Inspectors
• Supervisors
• Internal transport staff
• Storekeeper, maintenance staff

9. 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

10. B: Behaviour
Fixed
in short run & long run
Variable
Varies with volume and constant per unit
Semi-variable
A cost could be variable for one level of activity whereas it could
be fixed for another.
Not inherently fixed or variable
Many costs are semi-variable in nature

11. C: Functions
• Production Cost
• Administration Cost
• Selling Cost
• Distribution Cost

12. D: Normality
• Normal
• Abnormal

13. E: Control
• Controllable
• Uncontrollable

14. 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