Looking at the same cost from different angles of the same company.
Why?
For collecting and analysis purposes.
- Cost classification by nature(Subjective Classification)
Grouping costs according to whether they are material, labour or expense cost(obtaining materials & receiving materials within the organization)
- Lobour cost - Costs incurred in the form of wages or other employee related costs
- Expense cost - External costs such as royalty, rent, electricity, telephone etc. which will be invoiced by suppliers
2. Cost classification by purpose(This is objective classification)
This is where costs are grouped according to the reason per which they have been incurred. Hence the broadest classification would direct cost and indirect cost.
Direct Cost
Costs that can be clearly identified with the cost object. Direct costs could be further subdevided as follows.
- Direct material
- Direct labour
- Direct expenses
Indirect Costs
Costs that are not directly attributable with the cost object are indirect cost. It could also be further devided as indirect material, indirect labour& indirect expenses. For instances a manufacturer of wooden chair would classify all costs involved in making the table as follows,
3. Classification of cost by responsibility
This involves grouping costs according which individual manager or management team is responsible for the control of the cost.
Why different classifications of cost?
So that they could be reported in different ways to the management. This enables managers to take better decisions by looking at expenses in different angles.
11/09/2010 |Pg 4
This involves grouping costs according which individual manager or management team is responsible for the control of the cost.
Why different classifications of cost?
So that they could be reported in different ways to the management. This enables managers to take better decisions by looking at expenses in different angles.
11/09/2010 |Pg 4
