1 / 16

CLASSIFICATION OF COST

Rayat Shikshan Sanstha’s S.M.JOSHI COLLEGE, HADAPSAR, PUNE - 411028 Department of Commerce Prof. Gulave R.G. CLASSIFICATION OF COST. Elements Behavior Functions Normality Control Decision Making. Elements. MATERIAL LABOUR EXPENSES. MATERIAL.

garlanda
Download Presentation

CLASSIFICATION OF COST

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Rayat Shikshan Sanstha’sS.M.JOSHI COLLEGE, HADAPSAR, PUNE - 411028Department of Commerce Prof. Gulave R.G.

  2. CLASSIFICATION OF COST • Elements • Behavior • Functions • Normality • Control • Decision Making

  3. Elements • MATERIAL • LABOUR • EXPENSES

  4. MATERIAL • Direct: traceable to one particular process, job or product – identified with each unit of product • Example: manufacturing an apparel • Cloth, collar, buttons, cufflinks, thread • Primary packing material (e.g., carton, wrapping, cardboard, boxes, etc.) • Fuel, lubricating oil etc for operating & maintenance of machine • Small tools • Materials used for repairs & maintenance

  5. LABOUR • Inspectors • Supervisors • Internal transport staff • Storekeeper, maintenance staff

  6. EXPENSES • Expenses leading to a job or contract • Traveling expenses for negotiation • Special pattern, design • Special tools for executing the contract • Rent • Insurance • Canteen, hospital, power , lighting, maintenance

  7. Behavior Fixed in short run & long run Variable Varies with volume and constant per unit Semi-variable A cost could be variable for one level of activity whereas it could be fixed for another. Not inherently fixed or variable Many costs are semi-variable in nature

  8. Functions • Production Cost • Administration Cost • Selling Cost • Distribution Cost

  9. Normality • Normal • Abnormal

  10. Control Controllable & Uncontrollable

  11. Planning & Control • Budgeted Cost: estimate of expenditure for different business operations • Standard Cost: for prescribed set of operating conditions, labour, material and overheads are predetermined; budget translated into actual operation through standard costs

  12. Decision Making • Marginal vs. Absorption Costing (with fixed cost and without FC) • Sunk - irrelevant • Committed – pre committed • Opportunity • Incremental / Differential • Avoidable & Unavoidable • controllable / uncontrollable

  13. Relevance • Relevant • Irrelevant

  14. Cont….. • Irrelevant cost: not relevant for decision making • Example: Sunk costs: Sunk cost is the cost of abandoned plant less salvage value. Not relevant for decision making. • Imputed (Notional cost): Actually not incurred (interest on own capital, rent on owned building, etc.) Taken into account in capital budgeting decisions. • Replacement cost: Cost of replacing at current market price.

  15. Cont….. • Avoidable and unavoidable cost: Cost that can be avoided by eliminating a product or department is avoidable and that which cannot be, is unavoidable. Ex. – Rent of factory is unavoidable if a product is discontinued.

  16. Other costs: • Future costs: cost to be incurred in future • Programmed cost: Cost incurred as per policy of top management. Ex.- Donation to charity. • Joint cost: cost of joint or by-products incurred before separation, which cannot be traced to particular products. • Conversion cost: cost of converting raw material to finished goods = Production cost- direct material. • Discretionary cost: not essential for decision on hand. Ex.- Training expenses of workers, R&D cost. • Committed cost: Costs incurred due to past decisions and are not within control in the short run at present. Ex.- Depreciation on Plant, Rent, etc.

More Related