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Cost Classification Guide

This document discusses cost classification and types of costs. It defines costs as the monetary value of resources used or consumed, and notes that costs are always linked to a cost object. Costs can be classified based on variability (fixed, variable, semi-variable) and traceability (direct, indirect). There are 32 types of costs that can be classified in these ways. Examples are provided to illustrate cost classification criteria and how costs are assigned based on their characteristics.

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Mathur Dinesh
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129 views5 pages

Cost Classification Guide

This document discusses cost classification and types of costs. It defines costs as the monetary value of resources used or consumed, and notes that costs are always linked to a cost object. Costs can be classified based on variability (fixed, variable, semi-variable) and traceability (direct, indirect). There are 32 types of costs that can be classified in these ways. Examples are provided to illustrate cost classification criteria and how costs are assigned based on their characteristics.

Uploaded by

Mathur Dinesh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Costing Basic

All cost are not expense

What is a Cost?

Two ways Asset become expense


When Resource is consumed/used
Time basis, 50l asset will become expense over the years

Cost is monitory value of resources used or consumed.

Cost is always linked to Cost Object.

Cost object could be Department, section within department, activity, product, project, customer or service

32 Types of costs in books

Cost Classification

Criteria: Variability (Quantity discount, sales commission,

Fixed Cost: Depreciation, Salaries ETC

Semi Variable Cost: y=mx+c (Electricity, post-paid telephone, Sales manager with fixed salary & commission as variable)and Step(No of customer
increases, resources to be increased )
Variable Cost
Fixed Cost- Depreciation, Salaries

Step
Y=MX+C WHERE C IS
FIXED COST AND M IS
VARIBLE COST

Semi Variable

Semi Variable
Criteria: traceability to a cost Object

NO
Yes Need to be allocate to a cost
object: Most Difficult and imp

Direct Cost Indirect Cost:


Overhead

1) Common Resources used for multiple cost


Objects (Example: Running KYC in bank or
account department in Multispecialty Hospital)
2) There is no cause effect relationship wrt to
cost object (Example Advt campaign run by
Amul for a brand as whole not for any specific
product)
3) Amount of cost is very insignificant to make
efforts to trace

Exercise on cost classification


Particulars Cost Object Criteria: Variability Criteria: Traceability
Variable Fixed Semi-Variable: Direct Indirect
Step function
or y=mx+c type
Milk consumed in making a given flavour of an ice cream Given flavour Variable Direct
of ice cream cost
Staff canteen serving subsidised beverages and food items 1) Subsidy for Variable Indirect
to employees price difference (subsidy) paid by the Employee Cost(Vary
company Department with no of
employee
in depart)
2) Product or Fixed Indirect
service
Freight cost for a B2C company per unit weight but Customer Variable Direct
predetermined from X warehouse to a Y location
Security staff (on contract) in a factory manufacturing Product Fixed Indirect
multiple products
Relationship Manager in a bank handling a group of HNI Customers Fixed Indirect
customers(CTC)
Billing and accounting department in a multispecialty Patients Fixed Indirect
hospital
Excise duty on a raw material Raw Material Variable Direct
Comprehensive maintenance contract for office Product/ Fixed Indirect
equipments like air conditioners Service
Technician in a radiology unit providing x-ray, sonography Patient or Fixed Direct
and other facilities in a hospital Procedure
Fees paid to a cardiac surgeon for a by-pass surgery Patient Fixed Direct
Paper cup used in packing 100 gm of Masti Dahi (AMUL) Masti Dahi Variable Direct
Electricity cost element in determining machine-hour rate Machine Hour Variable Direct

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