Cost Classification Flashcards
Cost Classification.
What are the two groups which arrange cost by function?
How can these costs be further broken down costs by their nature?
Costs can be divided in to production and non-production. This provides a simple method to begin to classify costs.
Costs can the be divided by their nature, such as raw materials, labour, overheads. Non-production costs are usefully broken down first by service area, such as selling, administration, distribution, finance. Each of these classifications also has an element of labour costs, materials/expenses, overheads.
Production costs can also be divided into direct and indirect costs.
A direct cost can be traced in full to the product, service or department that is being costed.
Total direct costs = prime costs
Indirect production costs are those costs which are incurred in the course of making a product/service but which cannot be identified with a particular cost unit or batch.
Give 3 examples of the production & non-production costs, identifying direct & indirect production costs incurred, when working:
- In the catering industry.
- In an artist’s studio
- In the publishing industry
- In an online publication
- On a farm
Cost Objects, Cost Units and Cost Centres.
A cost object is anything for which costs data is desired e.g. products, product lines, jobs, customers or departments.
A cost unit is a unit of product or service in relation to which costs may be ascertained. The cost unit should be appropriate to the type of business.
A cost centre is a location, function or item of equipment in respect of which costs may be ascertained and related to cost units for control purposes. Factory costs centres are further identified as production cost centres and service cost centres.
Give 5 examples of cost objects, cost units, and cost centres for your favourite shops.
