A actual amount that has to be paid or given up in order to get some thing. In business cost is usually a monitory valuation of
* Utilities consumed
* Risk incurred
* Opportunity foregone in a product.
* Delivery of goods or services.
* All expenses and cost
Classification of cost
Purpose of classification
Preparing External Financial statements
| Product classification (Inventoriable),manufacturing cost: * Direct material. * Direct labor. * Manufacture overhead.Period Cost (Expensed)Non-manufacturing Cost: * Selling Cost. * Administrative cost.
| Predicting cost behavior in response to change in activities.
| * Variable Cost (Proportional to activity). * Fixed Cost (Constant in total). * Semi Variable Cost.
| Assigning cost to cost object such to changes in activity.
| * Direct Cost (can be easily traced). * Indirect Cost (can not be easily traced).
| Making Decision
| * Differential Cost (differs between alternatives). * Sunk Cost (Past cost not affected by a decision). * Opportunity Cost (Forgone Cost).
| * Controllable Cost. * Uncontrollable Cost.
| Classify time
| * Historical Cost. * Standard Cost.
| * Prime Cost. * Conversion Cost.
Cost of Quality.
| * Prevention Cost. * Appraisal Cost. * Internal failure cost. * External failure Cost.
1: purpose for cost classification cost is preparing External Financial statements Preparing Financial statements are divided into two parts
1: product cost
2: period cost.
1: product cost:
Product cost is the cost of direct labor is consumed to create a product. Product cost can also be considered the cost of the labor required to deliver service to a customer. Product cost is also called manufacturing cost and Inventoriable because it record in the balance sheet. Product costs are further divide into three types
* Direct Material
* Direct labor
* Manufactured over head
These are principle substance used in production that are transferred into finished good by addition of labor and manufacture overhead. The cost of material may be divided into two further types which are: * Direct material
* Indirect material.
* Direct material:
Direct material is all that material which can be identify in the product and can be conveniently measured and change to the product.
All material that can be identified with the product that can be easily traced to product. For Example:
* Wood furniture,
* Iron in fan,
* Clay in bricks
* Indirect material:
All the material involved in the production of a product that is not direct material. In other word those materials which are not easily traceable
Nail and glue used in manufacture of a table
Labor is a physical mental expended in a production of a product .labor cost may be divided into two types: *
All labor directly involves in the production of a finished product and that represent a major labor cost of producing the product.
The work of machine operator in a manufacturing concern would be considered direct labor. *
All labor involved in the production of a product that is not considered direct labor.
The work of plant supervisor in a manufacturing concern would be considered in a direct labor.
**: Manufactured overhead:
This is all the cost than direct material and direct labor of producing a product. Because the cost of any product equals the cost of direct material, direct labor and manufactured overhead.
2: Period cost
Selling and general administrative expense identify with the accounting period in which they are incurred and charged against sale...
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