COST CLASSIFICATION

BASIS CLASSIFICATION DESCRIPTION EXAMPLES

COSTS OF MATERIALS MATERIALS ISSUED

ELEMENT WISE 1) COSTS OF DIRECT
THAT ARE TRACED TO TO THE A JOB ORDER
CLASSIFICATION MATERIAL
THE COST OBJECT OR PROCESS

COSTS OF LABOUR WAGES OF MACHINE

2) DIRECT WAGES HOURS BOOKED FOR OPERATER, DRIVER
THE COST OBJECT OF BUS ETC.

COSTS OF SERVICES COSTS OF SPECIAL

3) DIRECT EXPENSES TRACED TO THE COST DESIGNS, SPECIAL
OBJECT EQUIPMENTS ETC.

COSTS OF MATERIAL,
EMPLOYEES, AND DEPRICIATION, RENT,
4) OVERHEADS/
SERVICES WHICH ARE LIGHTING CHARGES
INDIRECT COST
NOT TRACED TO ETC.
COST OBJECT.
 INSURANCE
COSTS, WHICH ARE NOT
BEHAVIOUR PREMIUM, RENT,
1) FIXED COSTS AFFECTED BY THE
PATTERN SALARIES OF
VOLUME OF OUTPUT
EXECUTIVES ETC.
COSTS, WHICH VARY IN
DIRECT MATERIAL,
DIRECT PROPORTION
2) VARIABLE COSTS SALESMEN
TO THE VOLUME OF
COMMISION ETC.
OUTPUT.

COSTS , WHICH CHANGE

WIT THE CHANGE IN
ACTIVITY LEVEL BUT
TELEPHONE
3) SEMI- NOT IN DIRECT
CHARGES,POWER
VARIABLE/FIXED COSTS PROPORTIONS. THESE
CHARGES ETC.
COSTS ARE PARTLY
FIXED AND PARTLY
VARIABLE.

AGGREGATE OF
COST ATTRIBUTABLE TO
COSTS OF DIRECT
ACTIVITIES DIRECTLY
FUNCTION WISE MATERIAL, WAGES
1) PRODUCT COST RELATED TO THE
CLASSIFICATION AND EXPENSES AND
PRODUCTION OF
MANUFACTURING
GOODS AND SERVICES
OVERHEAD.
 COST ATTRIBUTABLE
TO ADMINISTRATIVE
GENERAL
FUNCTIONS SUCH AS;
ADMINISTRATIVE
2) ADMINISTRATIVE COST FORMULATING
AND OFFICE
POLICIES, PLANNING,
EXPENSES
CONTROL OVER
ACTIVITIES ETC.
COST ATTRIBUTABLE
TO MARKETING SALES PROMOTION
FUNCTION SUCH AS EXPENSES,
3) SELLING COSTS CREATING AND CUSTOMER SERVICE
STIMULATING EXPENSES, BAD
DEMAND, AND DEBTS.
SECURING ORDERS
COST ATTRIBUTABLE RUNNING AND
TO DISTRIBUTION MAINTANENCE OF
4) DISTRIBUTION COSTS FUNCTION SUCH AS; DELIVERY VEHICLES,
PACKING AND WHAREHOUSE
DISPATCH EXPENSES
COST ATTRIBUTABLE
TESTING NEW
TO RESEARCH AND
5) R&D COSTS PRODUCTS OR
DEVELOPMENT
METHODS ETC.
ACTIVITIES
 A COST THAT IS USUALLY
INCURRED AT A GIVEN LEVEL
NORMALITY 1) NORMAL COST
OF CAPACITY UTILIZATION IN
A NORMAL ENVIORNMENT.

ABNORMAL COSTS
RESULT FROM
NATURAL CALAMITY,
2) ABNORMAL A COST THAT RESULTS FROM
SUDDEN
COST ABNORMAL REASONS.
BREAKDOWNS, AND
FROM SUCH OTHER
SIMILAR REASONS.
IT REPRESENT HISTORICAL
COST COST, INCURRED IN PAST
CLASSIFICATION AND IS IRREVOCABLE IN A BOOK VALUE OF
1) SUNK COST
FOR DECISION GIVEN SITUATION. HENCE ASSETS.
MAKING IRRELEVENT TO CURRENT
DECISION MAKING
MARGINAL COST IS THE COST
IT HELPS IN MAKING
OF ONE UNIT OF PRODUCT
DECISIONS LIKE MAKE
2) MARGINAL COST AND SERVICE WHICH WOULD
OR BUY, PRICING OF
BE AVOIDED IF THAT UNIT
PRODUCTS ETC.
WERE NOT PRODUCED
 A COMPANY CAN
DEPOSITE 1 LAKH
IT IS A COST THAT RUPEES IN BANK @
MEASURES THE 10% INTEREST OR
BENEFIT THAT IS LOST INVEST IN
OR SACRIFICED WHEN DEBENTURES WHERE
THE CHOICE OF 1 THE YIELD IS 17%. IF
3) OPPORTUNITY COST
COURSE OF ACTION COMPANY INVEST IN
REQUIRES THAT DEBENTURES IT WILL
OTHER ALTERNATIVE HAVE TO FOREGO
COURSE OF ACTION BANK INTEREST OF
BE GIVEN UP 10,000 P.A., WHICH IS
THE OPPORTUNITY
COST.
A MACHINERY
PURCHASED IN 1990
AT 10,000 IS
DISCARDED IN 1998
IT IS A CURRENT
AND A NEW
4) REPLACEMENT COST MARKET COST OF
MACHINERY IS
REPLACING AN ASSET
PURCHASED FOR
15,000 RS. SO THE
REPLACEMENT COST
IS 15,000 RS.
 INTEREST ON OWN
CAPITAL, RENT ON
IT IS A HYPOTHETICAL COST TAKEN OWN PREMISES ETC.
INTO ACCOUNT IN A PERTICULAR ARE NOT INCLUDED
SITUATION TO REPRESENT A BENEFIT IN FINANCIAL
5) IMPUTED COST
ENJOYED BY AN ENTITY IN RESPECT ACCOUNTS, BUT FOR
OF WHICH NO ACTUAL EXPENSE IS DETERMINING
INCURRED COMPARITIVE COST
MAY BE INCURRED IN
COST.

ARISE DUE TO
CHANGE IN METHOD
IT IS THE INCREASE AND DECREASE IN OF PRODUCTION,
6) DIFFERENTIAL COST THE TOTAL COST THAT RESULT FROM SALES VOLUME,
AN ALTERNATIVE COURSE OF ACTION. PRODUCT MIX, MAKE
OR BUY DECISION
ETC.

THERE ARE CERTAIN COST WHICH

7) OUT OF POCKET REQUIRE CASH PAYMENT SUCH AS
COST (EXPLICIT COST) WAGES, RENT, INSURANCE AND
POWER COST ETC.