Cost Classification and Material Management

Topics: Costs, Management accounting, Cost, Variable cost, Marginal cost, Fixed cost / Pages: 14 (3388 words) / Published: Mar 11th, 2009
Q. Give an Overview of Cost Classification and Material Management:
Ans: 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.

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, Pg1).

Cost can classify in many different ways. So considering all classification of cost with brief description is discussed below under respective heads:

Direct v Indirect Costs: The expenses incurred on material and labor which are economically and easily traceable for a product, service or job is considered as Direct 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).
These costs are generally allocated to products or cost

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