BY GHANENDRA FAGO Cost concepts, Cost Classification and Estimation.
Classification of Cost (1)
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Transcript of Classification of Cost (1)
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Cost-Analysis, Concepts, Classification and Cost
Sheet
Presented By: Ashish Goyal
Jitendra Jain
Nawal Surana
Nitesh Sadani
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Roadmap
Cost Concepts
Cost Classification
Cost Sheet
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Cost Concepts
Cost Object
Cost Driver
Conversion Cost
Contribution Margin
Carrying Cost
Out of Stock Cost
Ordering Cost
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Contd…..
Development Cost
Policy Cost
Idle Facilities Cost
Incremental Revenue
Urgent Costs
Postponable Costs
Pre-Production Costs
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Contd….
Research Costs
Training Costs
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CLASSIFICATION OF COST
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Comparing Merchandising and Manufacturing Activities
Merchandisers . . . Buy finished
goods. Sell finished goods.
Manufacturers . . . Buy raw materials. Produce and sell
finished goods.
Shoppers Stop
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Classification Of Cost
1. According To Nature2. According To function3. According To Identifiably4. According To Behavior5. According To Controllability6. According To Normality7. According To Period8. According To Time9. According To Planning and Control10. According To Association with Product11. According To Managerial Decisions.
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Classification Of Cost
1. According To Nature Or Elements
Materials Cost
LabourCost
Expenses
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Classification Of Cost
2 According to functions
ProductionCost
AdministrationCost RD Cost
Selling &Distribution
Cost
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Classification Of Cost
3 According To Identifiably
Direct Indirect
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Direct Costs and Indirect Costs
Direct costs
Costs that can beeasily and conveniently traced to a unit of product or other cost objective.
Examples: direct material and direct labor
Indirect costs
Costs cannot be easily and conveniently traced to a unit of product or other cost object.
Example: manufacturing overhead
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Classification Of Cost
4 According To Behavior
Fixed VariableSemi-Fixed
Variable
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Cost Classifications for Predicting Cost Behavior
How a cost will react to changes in the level of
business activity. Total variable costs
change when activity changes.
Total fixed costs remain unchanged when activity changes.
How a cost will react to changes in the level of
business activity. Total variable costs
change when activity changes.
Total fixed costs remain unchanged when activity changes.
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Total Variable Cost
Total Cost of materials depends upon How much materials you use
Materials used
Tot
al m
ater
ials
bill
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Variable Cost Per Unit
Materials Cost
Per
Uni
t Cos
t
Per unit materials cost will remain constant
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Total Fixed Cost
Your fixed cost probably does not change when you make production.
Total production
Mon
thly
Bas
ic T
Bill
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Fixed Cost Per Unit
production
Mon
thly
Bas
ic B
ill p
er u
nit
The average fixed cost per unit decreases as more production is made.
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Classification Of Cost
5 According to Controllability
ControllableCosts
Uncontrollable Costs
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Classification Of Cost
6 According To Normality
NormalCosts
AbnormalCosts
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By relationship with accounting period
Capital cost The cost required to earn income or to increase
earning capacity For ex.- the cost of rolling machine in steel industry.
Revenue expenditure Expenditure required to maintain earning capacity For ex.- cost of material for production, labor
charges, salary, depreciation, repairing charges etc.
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By time
Historical costsThe costs which ascertained after incurringNot helpful in decision making but can be
verified due to evidence of occurrence.
Predetermined costsComputed in advancehelpful in decision making
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According to planning and control
Budgeted cost- Estimate of expenditure for different phases of
business operations. Various budgets are made for various activities.
Standard cost- Technical estimates for material, labor and
overheads for a selected period of time & prescribed set of work conditions.
Determination in advance about production cost.
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By association with the product
Product costsThese are costs directly and indirectly
identifiable with the product. They are direct materials, direct labor, and factory overhead.
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Contd…
Period costs Those costs neither directly nor indirectly related
to the product are not inventoried but identify on the basis of time like- rent, salary etc.
For ex.- administrative expense, and interest incurred on corporate bonds (financing expense)
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For managerial decisions
Marginal cost Total of variable cost which means it concerns
about prime cost and variable overheads.
Imputed cost These are the costs which do not involve cash
outlay. They are not included in cost accounts but are important for taking into consideration while making management decisions.
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Contd…
Differential costsThe difference in total cost between two
alternatives is termed as differential cost. incremental costs. detrimental costs.
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Contd…
Out of pocket costs-
It means the present or future cash expenditure
regarding a certain decision will vary depending upon
the nature of the decision made.
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Contd…
Sunk costs Sunk costs are historical or past costs.
For ex.- after deducting salvage value form Investments in plant and machinery, buildings etc..
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Contd…
Opportunity cost Opportunity cost refers to an advantage in
measurable terms that have foregone on account of not using the facilities in the manner originally planned.
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Contd…
Avoidable and unavoidable costs
Avoidable costs are those which will be eliminated if a
segment of a business (e.g., a product or department) with
which they are directly related is discontinued.
Unavoidable costs are those which will not be eliminated
with the segment. Such costs are merely reallocated if the
segment is discontinued.
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Contd…
Replacement cost- It is the cost at which identical assets or materials
can be replaced.
Explicit cost- The cost which involves immediate payment of cash. For Ex.- salary, wage, interest on capital etc.
Implicit cost- The cost which doesn’t involve immediate payment
of cash. For ex.- depreciation
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