For example, if a building is proposed to be utilized for housing a new project plant, the likely revenue which the building could fetch, if rented out, is the opportunity cost which should be taken into account while evaluating the profitability of the project.
The future costs are costs expected to be incurred at a later date and are the only costs that matter for managerial decisions because they are subject to management control. Product pricing and product emphasisproduction costs!
Thus on the basis of variability, costs can be classified into the following three categories. There exists relationship between factory overhead and production. Certain costs although not directly related to production of goods or generation of service, these costs are incurred for support services.
Describe an incentive compensation plan that would avoid a conflict of interest between the president and the owners. Salaries and wages, dearness and other allowances, production incentive or bonus.
But prepaid rent of a shop or unrecovered costs of any equipment which will have to be scrapped are irrelevant costs which should be ignored.
Now consider some ways of classifying costs: Its main purpose is to provide basis for control through variance accounting for the valuation of stock and work-in-progress and in some cases, for fixing selling prices. Indirect Costs -Costs that cannot be directly related to a cost object.
The costs which are not associated with production are called period costs. Shutdown and Sunk Costs A manufacturer or an organization may have to suspend its operations for a period on account of some temporary difficulties, e. The costs that cannot be influenced like this are termed as uncontrollable costs.
Discretionary fixed costs are those which are set at fixed amount for specific time periods by the management in budgeting process. It can also be defined as any cost which is affected by the decision at hand.
In the Table below we have assumed selling price of Rs. Cost planning and pricing: Taking these functions into consideration, costs have been classified by: Fixed costs are basically overheads.
Overhead includes indirect materials, indirect labor, depreciation on the factory building and equipment, insurance and taxes on the factory, etc.Cost classification is the breakdown of costs in to similar categories and sub-categories.
Cost classification can be done with various methods and for different reasons, depending upon the reason for use. For example, a management may use controllable and uncontrollable cost classification, to identify which costs are controlled by management and which are not.
Cost classification is the process of grouping costs according to their common characteristics. A suitable classification of costs is of vital importance in order to identify the cost with cost centres or cost units.
Cost Classification Essays: OverCost Classification Essays, Cost Classification Term Papers, Cost Classification Research Paper, Book Reports. ESSAYS, term and research papers available for UNLIMITED access. The types are: 1. Cost Classification by Nature 2. Cost Classification in Relation to Cost Centre 3.
Cost Classification by Time 4. Cost Classification for Decision Making 5. Cost Classification by Nature of Production Process.
Classification of Costs: 5 Types | Accounting.
Article shared by: Essay on Computers. Cost accounting refers to a process of accumulating, recording, classifying and analyzing all costs incurred at various levels of production. The purpose of cost accounting is manifold.
It provides a final selling price, suggests the best possible course of action where maximum savings are possible and a strategy for future. _Variable costs and fixed costs: A variable cost is one, which varies directly with changes in the level of activity, over a defined period of time. - A fixed cost is one, which is not affected by changes in the level of activity, over a defined period of time.Download