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CLASSIFICATION OF COSTS

CLASSIFICATION
On the Basis of Identifiability or Traceability
On the basis of variability
On the basis of degree to which the firm is locked
On the basis of function
On the basis of degree of association with the
product
According to controllability
On the basis of time of computation
According to normality
On the basis of Identifiability
The cost units should be identified to the cost
units or jobs or processes or responsibility
centers, in order to identify the total cost
associated with the production and
distribution of goods and provision of
services.
Direct costs
Indirect costs
On the Basis of Variability
The costs incurred in any organization changes
with the level of activitiy.
There are certain costs which will change directly
in proportion to the level of activity, whereas
some other costs may not react to the changes in
the level of activity.
Fixed costs (Rent of premeises, insurance, salaries to
the manager etc.)
Variable costs ( raw materials used in production,
labour cost, power, commission on sales etc.)
Semi-variable costs (lighting, telephone charges)
On the basis of degree to which the
firm is locked
This classification is done on the basis of the
degree to which the firm is locked to the
source of the fixed costs. These costs may be
classified into:
Committed costs based on commitments
MDs salary
Discretionary costs changed based on
managerial decisions Advertising, R & D
Costs etc.
On the basis of function
A business entity performs many types of
functions like manufacturing, administration,
selling, distribution and research and
development etc, in the process of its day to
day activities.
For each of theses we may have various types
of expenses which can be grouped according
to the function performed.
Classification on the basis of function
Manufacturing or Factory costs
Office and administrative costs
Selling and distribution costs
Research and development costs
On the basis of degree of association with the product

Product costs
Period costs
According to controllability
Controllable costs
Uncontrollable costs
On the basis of time of computation
Normal costs
Abnormal costs
Types of costs for managerial decision making
Marginal cost
Out of pocket cost
Differential costs or incremental costs
Opportunity costs
Replacement costs
Imputed costs
Sunk costs
Relevant costs
Standard costs
Capacity costs
Urgent costs
Other types of costs
Conversion cost
Traceable costs
Common costs
Joint costs
Total cost
Methods of costing
Job costing
Contract costing
Process costing
Cost Management

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