Cost-Analysis, Concepts,

Classification and Cost

Sheet

Presented By: Ashish Goyal

Jitendra Jain
Nawal Surana
Nitesh Sadani
 Roadmap

Cost Concepts

Cost Classification

Cost Sheet
 Cost Concepts

Cost Object
Cost Driver
Conversion Cost
Contribution Margin
Carrying Cost
Out of Stock Cost
Ordering Cost
Contd…..

Development Cost
Policy Cost
Idle Facilities Cost
Incremental Revenue
Urgent Costs
Postponable Costs
Pre-Production Costs
Contd….

Research Costs
Training Costs
CLASSIFICATION OF COST
 Comparing Merchandising
and Manufacturing Activities

Merchandisers . . . Manufacturers . . .
 Buy finished  Buy raw materials.
goods.  Produce and sell
 Sell finished goods. finished goods.

Shoppers Stop
 Classification Of Cost

1. According To Nature
2. According To function
3. According To Identifiably
4. According To Behavior
5. According To Controllability
6. According To Normality
7. According To Period
8. According To Time
9. According To Planning and Control
10. According To Association with Product
11. According To Managerial Decisions.
 Classification Of Cost

1. According To Nature Or Elements

Materials Labour
Expenses
Cost Cost
 Classification Of Cost

2 According to functions

Production Selling &

Cost Distribution
Cost

Administration
Cost
RD Cost
 Classification Of Cost

3 According To Identifiably

Direct Indirect
 Direct Costs and Indirect
Costs
Direct costs Indirect costs
Costs that can be
easily and conveniently
traced to a unit of
product or other cost
objective.
Examples: direct
material and direct labor
Costs cannot be easily
and conveniently traced
to a unit of product or
other cost object.
Example:
manufacturing
overhead
 Classification Of Cost

4 According To Behavior

Semi-Fixed
Fixed Variable Variable
 Cost Classifications for
Predicting Cost Behavior
How
How aa cost
cost will
will react
react to
to
changes
changes in
in the
the level
level of
of
business
business activity.
activity.
Total

Totalvariable
variablecosts
costs
change
changewhen
when activity
activity
changes.
changes.
Total

Totalfixed
fixed costs
costs
remain
remainunchanged
unchanged
when
whenactivity
activitychanges.
changes.
 Total Variable Cost

Total Cost of materials depends upon

How much materials you use
Total materials bill

Materials used
 Variable Cost Per Unit

Per unit materials cost will remain constant

Per Unit Cost

Materials Cost
 Total Fixed Cost
Your fixed cost probably does not change
when you make production.
Monthly Basic T Bill

Total production
 Fixed Cost Per Unit
The average fixed cost per unit decreases as
more production is made.

Monthly Basic Bill per unit

production
 Classification Of Cost

5 According to Controllability

Controllable Uncontrollable
Costs Costs
 Classification Of Cost

6 According To Normality

Abnormal
Normal
Costs
Costs
By relationship with accounting period

Capital cost
 The cost required to earn income or to increase
earning capacity
 For ex.- the cost of rolling machine in steel industry.

Revenue expenditure
 Expenditure required to maintain earning capacity

 For ex.- cost of material for production, labor

charges, salary, depreciation, repairing charges etc.
 By time
Historical costs
 The costs which ascertained after incurring
 Not helpful in decision making but can be
verified due to evidence of occurrence.
Predetermined costs
 Computed in advance
 helpful in decision making
According to planning and control

Budgeted cost-
 Estimate of expenditure for different phases of
business operations.
 Various budgets are made for various activities.

Standard cost-
 Technical estimates for material, labor and
overheads for a selected period of time & prescribed
set of work conditions.
 Determination in advance about production cost.
 By association with the product

Product costs
 These are costs directly and indirectly
identifiable with the product. They are
direct materials, direct labor, and factory
overhead.
 Contd…

Period costs
 Those costs neither directly nor indirectly related
to the product are not inventoried but identify on
the basis of time like- rent, salary etc.
 For ex.- administrative expense, and interest
incurred on corporate bonds (financing expense)
 For managerial decisions

Marginal cost
 Totalof variable cost which means it concerns
about prime cost and variable overheads.
Imputed cost
 These are the costs which do not involve cash
outlay. They are not included in cost accounts
but are important for taking into consideration
while making management decisions.
 Contd…

Differential costs
 The difference in total cost between two
alternatives is termed as differential cost.
 incremental costs.
 detrimental costs.
 Contd…

Out of pocket costs-

 It means the present or future cash expenditure
regarding a certain decision will vary depending upon
the nature of the decision made.
 Contd…

Sunk costs
 Sunk costs are historical or past costs.

 For ex.- after deducting salvage value form

Investments in plant and machinery, buildings etc..
 Contd…

Opportunity cost
 Opportunity cost refers to an advantage in
measurable terms that have foregone on account
of not using the facilities in the manner originally
planned.
 Contd…

Avoidable and unavoidable costs

 Avoidable costs are those which will be eliminated if a
segment of a business (e.g., a product or department) with
which they are directly related is discontinued.

 Unavoidable costs are those which will not be eliminated

with the segment. Such costs are merely reallocated if the
segment is discontinued.
 Contd…

Replacement cost-
 It is the cost at which identical assets or materials
can be replaced.
Explicit cost-
 The cost which involves immediate payment of cash.

 For Ex.- salary, wage, interest on capital etc.

Implicit cost-
 The cost which doesn’t involve immediate payment
of cash.
 For ex.- depreciation