Question: What Are The Classification Of Costs?

What are components of cost?

A cost is composed of three elements – Material, Labour and Expenses.

Each of these three elements can be direct and indirect, i.e., direct materials and indirect materials, direct labour and indirect labour, direct expenses and indirect expenses..

What is basic cost?

1. Basic Cost Concepts. 2. Define Terms 1) Cost : Expenditure incurred in producing a product or in rendering a service measurement, in monetary terms, of the amount of resources used for the purpose of production of goods or rendering services. 2) Costing : The technique and process of ascertaining costs.

Why classification of cost is important?

Classification of costs into fixed and variable elements helps management to control costs effectively as fixed costs are incurred by management decisions and can be controlled only by the top management. Further, variable costs may be controlled even at the lower levels of management.

What are the classification of expenses?

Types of Expenses variable. One of the most popular methods is classification according to fixed costs and variable costs. Fixed costs do not change with increases/decreases in units of production volume, while variable costs are solely dependent. Depreciation and amortization.

What are the 4 types of cost?

Following this summary of the different types of costs are some examples of how costs are used in different business applications.Fixed and Variable Costs.Direct and Indirect Costs. … Product and Period Costs. … Other Types of Costs. … Controllable and Uncontrollable Costs— … Out-of-pocket and Sunk Costs—More items…•

What are cost categories?

A cost category is used to define costs into a category more specific than a CBS code. The most commonly used cost category types are labor, equipment, materials, and other. These types allow you to categorize costs into groups. For example, you may want to track costs associated with labor.

How much do elements cost?

Chemical elements by market priceZSymbolReference price3Li800,000.00 CNY per metric ton4Be5,750.00 CNY per kilogram5B16,500.00 CNY per kilogram6C2.40 USD per 100 grams43 more rows•Oct 9, 2018

What are the 6 types of cost savings?

The following are common types of cost reduction.Automation. Doing things automatically with information technology, machines and robots.Productivity. Improving the productivity of workers. … Efficiency. Improving the efficiency of equipment and processes. … Outsourcing. … Waste. … Quality Control. … Reliability.

What is cost and its classification?

Cost classification involves the separation of a group of expenses into different categories. … Fixed and variable costs. Expenses are separated into variable and fixed cost classifications, and then variable costs are subtracted from revenues to arrive at a company’s contribution margin.

What are the three elements of cost?

The Elements of Cost are the three types of product costs (labor, materials and overhead) and period costs.

What are the different types of cost Centres?

There are two main types of cost centres:Production cost centres, where the products are manufactured or processed. Example of this is an assembly area.Service cost centres, where services are provided to other cost centres. Example of this is the personnel department or the canteen.

What do you mean by functional classification of cost?

This is the functional classification of costs. So the classification follows the pattern of basic managerial activities of the organization. The grouping of costs is according to the broad divisions of functions such as production, administration, selling etc.

How do you classify cost in accounting?

In managerial accounting, costs are classified into fixed costs, variable costs or mixed costs (based on behavior); product costs or period costs (for external reporting); direct costs or indirect costs (based on traceability); and sunk costs, opportunity costs or incremental costs (for decision-making).

Which is an example of functional classification of cost?

Examples – insurance, taxes and duties, 6.3 By functions/activities: 6.3. 1 Costs should be classified according to the major functions for which the elements are used into the following four major functions : Production; Administration; Selling; Distribution; and Research & Development Expenditure.

Is rent a fixed cost?

Unlike variable costs, a company’s fixed costs do not vary with the volume of production. Fixed costs remain the same regardless of whether goods or services are produced or not. … The most common examples of fixed costs include lease and rent payments, utilities, insurance, certain salaries, and interest payments.