CLASSIFICATION OF COST PART 1 COST ACCOUNTING

• CLASSIFICATION OF COST PART 1
• COST ACCOUNTING
• ACCOUNTING FOR MANAGEMENT
• MEANING

1. COST IS THAT WHICH IS GIVEN OR SACRIFICED TO OBTAIN SOME THING
2. VALUE IS MEASURED IN USEFULNESS BUT COST IS MEASURED IN MONEY
3. EXPENSES  ARE COSTS WHICH HAVE BEEN INCURRED TO GENERATE REVENUE
4. LOSS DENOTES SACRIFICE FOR WHICH THERE IS NO CORRESPONDING RETURN

• COST CLASSIFICATION

1. BY NATURE OR ELEMENTS                        
2. BY FUNCTIONS
3. BY DEGREE OF TRACEABILITY
4. BY CONTROLLABILITY
5. BY CHANGE IN ACTIVITY
6. BY NORMALITY
7. BY RELATIONSHIP WITH ACCOUNTING
8. BY ASSOCIATION WITH THE PRODUCT
9. BY TIME
10. BY PLANNING AND CONTROL AND FOR MANAGERIAL DECISIONS

• BY NATURE OR ELEMENTS
• DIRECT MATERIALS: ARE THOSE MATERIALS WHICH CAN BE IDENTIFIED IN PRODUCT AND CAN BE CONVENIENTLY MEASURED AND DIRECTLY CHARGED TO THE PRODUCT. LIKE TIMBER IN FURNITURE MAKING
• DIRECT MATERIALS:-

1. ALL RAW MATERIAL: PIG IRON IN FOUNDRY,JUTE IN MANUFACTURE OF GUNNY BAGS
2. MATERIALS SPECIFICALLY PURCHASED FOR SPECIFIC JOB,PROCESS OF ORDER LIKE GLUE FOR BOOK BINDING
3. PARTS OD COMPONENTS PURCHASED OR PRODUCED LIKE BATTERIES FOR CARS
4. PRIMARY PACKING MATERIALS: LIKE CARTONS,WRAPPING ETC

• INDIRECT MATERIALS: ARE THOSE MATERIALS WHICH CAN NOT BE CLASSIFIED AS DM. LIKE CONSUMABLE STORE,COTTON WASTE,MATERIALS FOR REPAIRS ETC
• DIRECT LABOUR:-THAT LABOUR WHICH CAN BE CONVENIENTLY IDENTIFIED OR ATTRIBUTED WHOLLY TO PARTICULAR JOB,PROCESS OR USED IN CONVERTING RAW MATERIAL INTO FINISHED GOODS.WAGES OF SUCH KNOWN AS DIRECT WAGES
• INDIRECT LABOUR WHICH CAN NOT BE CONVENIENTLY IDENTIFIED OR ATTRIBUTED TO PARTICULAR PROCESS OR JOB ETC
• DIRECT CHARGEABLE  EXPENSES:-ALL EXPENSES WHICH CAN BE DIRECTLY IDENTIFIED TO PARTICULAR COST CENTERS
• OVERHEAD MAY BE DEFINED AS THE AGGREGATE OF THE COST OF INDIRECT MATERIALS,INDIRECT LABOUR AND OTHER EXPENSES WHICH CAN NOT BE DIRECTLY CHARGED TO SPECIFIC COST CENTER. THESE ARE MANUFACTURING OVERHEADS,ADMINISTRATION OVERHEAD,SELLING OVERHEADS AND DISTRIBUTION OVERHEADS
• FUNCTIONAL CLASSIFICATION
• GROUPING OF COSTS ACCORDING TO THE BROAD DIVISIONS OR FUNCTIONS OF A BUSINESS UNDERTAKING THESE ARE MANUFACTURING OVERHEADS,ADMINISTRATION OVERHEAD,SELLING OVERHEADS AND DISTRIBUTION OVERHEADS

1. MANUFACTURING AND PRODUCTION COSTS:- TOTAL OF COSTS INVOLVED IN MANUFACTURE,CONSTRUCTION AND FABRICATION OF UNITS OF PRODUCTION
2. COMMERCIAL COST :-OTHER THAN COST OF MANUFACTURING. IT MAY BE FURTHER SUBDIVIDED INTO :

a)    ADMINISTRATIVE COST

b)    SELLING AND DISTRIBUTION COST

• BY DEGREE OF TRACEABILITY TO THE PRODUCT
• DIRECT COST:ARE THOSE WHICH IS INCURRED FOR AND MAY BE CONVENIENTLY IDENTIFIED WITH PARTICULAR COST CENTER OR COST UNIT
• INDIRECT COST:-WHICH ARE INCURRED FOR THE BENEFITS OF VARIOUS COST CENTERS AND CAN NOT BE CONVENIENTLY IDENTIFIED TO PARTICULAR COST UNIT OR COST CENTER FOR EXAMPLE RENT OF THE BUILDING,MACHINERY DEPRECIATION ETC
• BY CHANGE IN THE ACTIVITY OR VOLUME
• CLASSIFIED ON TH E BASIS OF CHANGE IN THE VOLUME OR LEVEL OF ACTIVITY

1. FIXED COSTS: WHICH REMAIN FIXED IN TOTAL AMOUNT WITH INCREASE OR DECREASE IN THE VOLUME OF OUTPUT. LIKE RENT,INSURANCE,INTEREST ETC
2. VARIABLE COSTS: WHICH VARY DIRECT PROPORTION TO THE VOLUME OF OUTPUT.PER UNIT RELATIVELY CONSTANT WITH CHANGES IN PRODUCTION. ALSO KNOWN AS PRODUCT COST. DIRECT MATERIALS.DIRECT LABOUR AND DIRECT EXPENSE
3. SEMI VARIABLE COSTS:- WHICH ARE PARTLY VARIABLE OR PARTLY FIXED LIKE TELEPHONE EXPENSES

• CLASSIFICATION OF FIXED COSTS

1. COMMITTED COST:NO DISCRETION OF MANAGEMENT IN SUCH TYPES. LIKE RENT,INSURANCE ETC
2. POLICY AND MANAGED COSTS: INCURRED FOR IMPLEMENTING SOME MGMT POLICIES LIKE EXECUTIVE DEVELOPMENT,HOUSING ETC
3. DISCRETIONARY COSTS: FROM SOME POLICY DECISIONS.ADVERTISING,PUBLIC RELATION AND TRAINING
4. STEP COSTS: CONSTANT FOR GIVEN LEVEL OF OUTPUT AND THEN INCREASED FOR FIXED AMOUNT AT HIGHER LEVEL OF OUTPUT

• BY ASSOCIATION WITH PRODUCT
• PRODUCT COSTS:-PURCHASE AND SALE OF GOODS. WHICH ARE TRACEABLE TO THE PRODUCT AND ARE INCLUDED IN INVENTORY VALUATION. BECOME BASIS FOR PRODUCT PRICING,COST PLUS CONTRACTS. THEY CONSISTS OF DM,DL AND MANUFACTURING OVERHEADS IN CASE OF MANUFACTURING FIRM
• PERIOD COSTS :- NOT ASSIGNED TO PRODUCTS BUT ARE INCURRED ON THE BASIS OF TIME SUCH AS RENT,SALARIES. NOT ASSOCIATED WITH PRODUCTION AND ARE NECESSARY FOR GENERATION OF REVENUE BUT CAN NOT BE ASSIGNED TO PARTICULAR PRODUCT

• BY CONTROLLABILITY
• CONTROLLABLE COSTS: WHICH CAN BE INFLUENCED BY THE ACTIONS OF SPECIFIED MEMBER OF AN UNDERTAKING. AN ORGANIZATION IS DIVIDED INTO RESPONSIBILITY COST CENTER AND CONTROLLABLE COST INCURRED CAN BE CONTROLLED BY HEAD OF THAT COST CENTER: DM,DL AND DIRECT EXPENSE
• UNCONTROLLABLE COSTS: WHICH CAN NOT BE INFLUENCED BY ACTION OF SPECIFIED MEMBER OF AN UNDERTAKING WHICH ARE NOT IN THE CONTROL OF MGMT. RENT OF THE BUILDING ETC
• BY NORMALITY

1. NORMAL COST:- PART OF COST OF PRODUCTION. COST INCURRED UNDER NORMAL CONDITIONS.PART OF COST OF PRODUCTION
2. ABNORMAL COST:- NOT NORMALLY INCURRED AT A GIVEN LEVEL OF OUTPUT.

• NOT A PART OF COST OF PRODUCTION AND CHARGED TO COSTING PROFIT AND LOSS ACCOUNT.

• BY THE TIME
• HISTORICAL COST:- ASCERTAINED AFTER INCURRENCE. NOT USEFUL FOR COST CONTROL PURPOSE.
• RECORDED FACT AND
• COULD BE VERIFIED BECAUSE OF PROPER DOCUMENTED.
• PREDETERMINED COSTS :- ESTIMATED COSTS. AND THEY ARE CALCULATED IN ADVANCE OF PRODUCTION TAKING INTO CONSIDERATION THE PREVIOUS YEAR’S PERIOD COSTS AND FACTORS AFFECTING SUCH COSTS. DETERMINED ON SOME SCIENTIFIC BASIS