Lec 30 | CLASSIFICATION OF COSTS | JKSSB FINANCE ACCOUNTS ASSISTANT EXAM | CA MOHAMAD LATEEF

Lec 30 | CLASSIFICATION OF COSTS | JKSSB FINANCE ACCOUNTS ASSISTANT EXAM | CA MOHAMAD LATEEF For notes : Telegram Channel : @eactclasses2 #Cost_Accounting 2. By Functions 1. Manufacturing and Product Cost: This is the total of costs involved in manufacture, construction and fabrication of units of production. 2. Commercial Cost: This is the total of costs incurred in the operation of a business undertaking other than the cost of manufacturing and production. Commercial cost may further be sub-divided into. (a) Administrative cost, and (b) Selling and distribution cost. 3. By Degree of traceability to product 1. Direct Cost: Costs that can be directly related to the production of goods and services. For example, for a company that produces furniture, the funds that are spent on wood, paint, varnish, and the labour cost for hiring a craftsman will be direct costs. This is because these costs can be directly associated with the production of the furniture 2. Indirect Cost: Costs that cannot be directly associated with the production of goods and services. Taking the previous example into consideration; indirect costs for a furniture business would be the rent that is paid for the building and office space, utility bills, administrative expenses, etc 4. By changes in Activity or volume 1. Fixed Cost: Fixed costs are commonly described as those which remain fixed in total amount with increase or decrease in the volume of output or productive activity for a given period of time. Fixed cost per unit decreases as production increases and increases as production declines. Examples of fixed costs are rent, insurance of factory building, factory manager’s salary etc. These fixed costs are constant in total amount but fluctuate per unit as production changes. 2. Variable Cost: Variable costs are those which vary in total in direct proportion to the volume of output. These costs per unit remain relatively constant with changes in production. Thus, variable costs fluctuate in total amount but tend to remain constant per unit as production activity changes. Examples are direct material costs, Direct labour costs, Power, repairs etc. 3. Semi Variable Cost: Semi-variable costs are those which are partly fixed and partly variable. For example, telephone expenses include a fixed portion of monthly charge plus variable charge according to calls; thus, total telephone expenses are semi-variable. 5. By controllability 1. Controllable Cost: Costs are those which can be influenced by the action of a specified member of an undertaking, that is to say, costs which are at least partly within the control of management. Generally speaking, all direct costs including direct materials, direct labour and some of the overhead expenses are controllable by lower level of management. 2. Uncontrollable Cost: Costs are those which cannot be influenced by the action of a specified member of an undertaking, that is to say, which are not within the control of management. Most of the fixed costs are uncontrollable. For example, rent of the building is not controllable and so is managerial salaries. 6. By Normality 1. Normal Cost: It is the cost which is normally incurred at a given level of output in the conditions in which that level of output is normally attained. It is a part of cost of production. 2. Abnormal Cost: It is the cost which is not normally incurred at a given level of output in the conditions in which that level of output is normally attained. It is not a part of cost of production and charged to costing profit and loss account 7. By Relationship with accounting period 1. Capital Cost: The cost which is incurred in purchasing an asset either to earn income or increasing the earning capacity of the business is called capital cost, for example, the cost of a rolling machine in case of steel plant. Such cost is incurred at one point of time but the benefits accruing from it, is spread over a number of accounting years. 2. Revenue Cost: If any expenditure is done in order to maintain the earning capacity of the concern such as cost of maintaining an asset or running a business it is revenue expenditure e.g., cost of materials used in production, labour charges paid to convert the material into production, salaries, depreciation, repairs and maintenance charges, selling and distribution charges etc. 8. By Time 1. Historical Cost: The costs which are ascertained after being incurred are called historical costs. Such costs are available only when the production of particular thing has already been done. Such costs are only of historical value and not at all helpful for cost control purposes