How cost is classified on the basis of elements?

Based on elements, cost is classified into material, labour and expenses. They are subdivided into direct and indirect material, labour and expenses. The total direct cost is termed as prime cost. Indirect material, indirect labour and indirect expenses, together are termed as indirect cost or ‘overheads’.

How do you classify the costs explain?

Types of Cost Classification

  1. #1 – Fixed and Variable Cost. These are the two primary categories to segregate the costs; fixed costs. …
  2. #3 – Customer Cost. …
  3. #4 – Departmental Cost. …
  4. #1 – By Nature. …
  5. #2 – By Functions. …
  6. #3 – By Behaviour. …
  7. #5 – By Production Process. …
  8. #6 – By Time.

How costs are classified on the basis of function?

6.3. 1 Costs should be classified according to the major functions for which the elements are used into the following four major functions : Production; Administration; Selling; Distribution; and Research & Development Expenditure.

What is meant by elements of cost?

A cost element is the cost of a resource that is consumed by an activity. The concept is used in activity-based costing. For example, production supplies may be a cost element that is included in a cost pool for a production process.

How many ways can cost classification be done?

Cost classification can be done in several ways. Cost classification in economics might involve categories of fixed, variable, opportunity, production and sunk costs. On the other hand, accounting costs can be classified as either direct or indirect for a business.

What are the 4 types of cost?

Types of Costs

  • 1) Fixed costs. Costs that are unaffected by the quantity of demand. …
  • 2) Variable costs. Costs associated with a company’s output level. …
  • 3) Operating costs. …
  • 4) Direct costs. …
  • 5) Indirect costs. …
  • 1) Standard Costing. …
  • 2) Activity-Based Costing. …
  • 3) Lean Accounting.

What is the basis of costing?

What Is Cost Basis? Cost basis is the original value or purchase price of an asset or investment for tax purposes. The cost basis value is used in the calculation of capital gains or losses, which is the difference between the selling price and purchase price.

What are the 3 main elements of cost?

The Elements of Cost are the three types of product costs (labor, materials and overhead) and period costs.

Which is the main elements of cost of production?

Key Takeaways

Production costs can include a variety of expenses, such as labor, raw materials, consumable manufacturing supplies, and general overhead. Total product costs can be determined by adding together the total direct materials and labor costs as well as the total manufacturing overhead costs.

What are the elements of cost sheet?

A cost sheet statement consists of prime cost, factory cost, cost involved in the production of goods sold, and total cost.

What are the five types of cost?

The 5 costs they cover are:

  • Direct cost.
  • Indirect cost.
  • Fixed cost.
  • Variable cost.
  • Sunk cost.

What are the five cost concepts?

Besides the concept of opportunity cost, there are several other concepts of cost namely fixed costs, explicit costs, social costs, implicit costs, social costs, and replacement costs.

What are the 10 types of cost?

Types of Costs

  • Opportunity costs.
  • Explicit costs.
  • Implicit costs.
  • Accounting costs.
  • Economic costs.
  • Business costs.
  • Full costs.
  • Fixed costs.

What are the different types of cost explain with example?

Operating costs can be variable or fixed. Examples of operating costs, which are more commonly called operating expenses, include rent and utilities for a manufacturing plant. Operating costs are day-to-day expenses, but are classified separately from indirect costs – i.e., costs tied to actual production.

What are the two classification of cost?

In this classification, two types of costs fall: Controllable – These are controlled by management like material labour and direct expenses. Uncontrollable – They are not influenced by management or any group of people. They include rent of a building, salaries, and other indirect expenses.

How are costs classified by accounting function and management function?

In managerial accounting, costs are classified into fixed costs, variable costs or mixed costs (based on behavior); product costs or period costs (for external reporting); direct costs or indirect costs (based on traceability); and sunk costs, opportunity costs or incremental costs (for decision-making).

Why classification of cost is important?

Classification of costs into fixed and variable elements helps management to control costs effectively as fixed costs are incurred by management decisions and can be controlled only by the top management. Further, variable costs may be controlled even at the lower levels of management.

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