Cost Classification
Cost Classification
Introduction: In this assignment I will be discussing how costs incurred in any organization may be classified in a number of different ways for a number of different purposes. I will also be looking to find companies that use a variety of different costing techniques and methods. I will also be discussing the comparisons between marginal and absorption costing and how the concept of activity based costing can also be compared with these. To complete the assignment I will be using a combination of lectures notes, text books and the internet to research the various ways of cost classification, and how different companies use these, to enable me to answer the assignment question.
Findings:
1. Cost classification
Cost classification is the breakdown of costs in to similar categories and sub-categories. Cost classification can be done with various methods and for different reasons, depending upon the reason for use. For example, a management may use controllable and uncontrollable cost classification, to identify which costs are controlled by management and which are not. The main areas in which costs can be classified are decision making, planning, control and stock valuation. (Management Accounting Techniques, 1994, Page 1).
1.1 Direct v Indirect Costs
Direct costs are those which can be identified with the end product. This includes raw materials used in manufacturing the product (direct material); machine operators who make the product (direct labour), royalties paid or special plant hire (direct expenses). (Management Accounting Techniques, 1994, page 2).
Direct labour costs are established by measuring the time taken for a job to be completed. In the past direct labour costs have been restricted to wage-earning factory workers, but in recent years, with the development of systems for costing services (service costing), the costs of some salaried staff might also be treated as a direct labour costs.
Other expenses are
Introduction: In this assignment I will be discussing how costs incurred in any organization may be classified in a number of different ways for a number of different purposes. I will also be looking to find companies that use a variety of different costing techniques and methods. I will also be discussing the comparisons between marginal and absorption costing and how the concept of activity based costing can also be compared with these. To complete the assignment I will be using a combination of lectures notes, text books and the internet to research the various ways of cost classification, and how different companies use these, to enable me to answer the assignment question.
Findings:
1. Cost classification
Cost classification is the breakdown of costs in to similar categories and sub-categories. Cost classification can be done with various methods and for different reasons, depending upon the reason for use. For example, a management may use controllable and uncontrollable cost classification, to identify which costs are controlled by management and which are not. The main areas in which costs can be classified are decision making, planning, control and stock valuation. (Management Accounting Techniques, 1994, Page 1).
1.1 Direct v Indirect Costs
Direct costs are those which can be identified with the end product. This includes raw materials used in manufacturing the product (direct material); machine operators who make the product (direct labour), royalties paid or special plant hire (direct expenses). (Management Accounting Techniques, 1994, page 2).
Direct labour costs are established by measuring the time taken for a job to be completed. In the past direct labour costs have been restricted to wage-earning factory workers, but in recent years, with the development of systems for costing services (service costing), the costs of some salaried staff might also be treated as a direct labour costs.
Other expenses are
Bibliography: ACCA. (1991) Cost and Management Accounting 1 (4th Edition), BPP Publishing Limited Drury, C., (1998) Costing an Introduction (4th Edition), International Thomson Publishing (Accessed 6th February 2007) Wikipedia, the free encyclopedia http://en.wikipedia.org/wiki (Accessed 6th February 2007) (Accessed 6th February 2007) Answers.com http://www.answers.com/topic/relevant-costs-1 (Accessed 6th February 2007) (Accessed 6th February 2007) Basic College Accounting http://basiccollegeaccounting.com/marginal-costing-its-features-advantages-and-disadvantages/ (Accessed 6th February 2007)