What is cost concept and classification?

What is cost concept and classification?

Costs can be classified in different ways. There are manufacturing costs and non-manufacturing costs, direct and indirect costs, product and period costs, controllable and uncontrollable costs, fixed and variable, etc.

What are the classifications of costs?

So basically there are three broad categories as per this classification, namely Labor Cost, Materials Cost and Expenses. These heads make it easier to classify the costs in a cost sheet. They help ascertain the total cost and determine the cost of the work-in-progress.

What are cost concepts?

The concept of cost is a key concept in Economics. It refers to the amount of payment made to acquire any goods and services. In a simpler way, the concept of cost is a financial valuation of resources, materials, undergone risks, time and utilities consumed to purchase goods and services.

What is cost concept with example?

Explanation. Under the cost concept of accounting, an asset should be recorded at the cost at which it was purchased, regardless of its market value. For example, if a building is purchased for $500,000, it will continue to appear in the books at that figure, irrespective of its market value.

What is purpose of cost classification?

Cost classification allows the manager to control processes and cut costs where needed, and perhaps send more resources to an area of the process that is lacking. It also allows him to review reports and advise accounting of needed adjustments in cost classification.

What is the importance of cost classification?

Classification of costs into fixed and variable elements helps management to control costs effectively as fixed costs are incurred by management decisions and can be controlled only by the top management. Further, variable costs may be controlled even at the lower levels of management.

Why do we use cost concept?

When a business acquires an asset, the value of that asset is recorded in the business’s financial reports. Often, the cost principle is used to keep a record of a company’s tangible assets, without reflecting the market value.

What is the importance of cost concept?

Understanding the Cost Principle Is Important to Your Business. The cost principle states that any asset should be recorded at the purchase price. The cost principle maintains that the cost of an asset must be recorded at historical cost, or its original cost and should not be recorded at fair market value.

What are the classifications of cost?

Classification Of Cost. 1. 3. MATERIAL COST Cost of materials used for the manufacture of a product, a particular work order, or provision of a service. Example: Cloth for making a dress, stores used for maintaining machines and buildings such as lubricants, cotton waste, bricks etc.

What are the cost concepts?

Cost Concepts 2. Cost Concept:  It is used for analyzing the cost of a project in short and long run. 3. Types of Cost:  Total fixed costs (TFC)  Average fixed costs (AFC)  Total variable costs (TVC)  Average variable cost (AVC)  Total cost (TC)  Average total cost (ATC)  Marginal cost (MC)

What is meant by production cost?

PRODUCTION COST The cost of the sequence of operations which begins with supplying materials, labour and services and ends with primary packing of the product. Thus it includes the cost of direct materials, direct labour, direct expenses and factory overheads. 8.

What is an example of material cost?

MATERIAL COST Cost of materials used for the manufacture of a product, a particular work order, or provision of a service. Example: Cloth for making a dress, stores used for maintaining machines and buildings such as lubricants, cotton waste, bricks etc.