UNIVERSITY OF BARISHAL

ASSIGNMENT
COURSE TITLE : Management Accounting
COURSE CODE : AIS 4101
TOPIC : Assignment on Cost Classification
SUBMITTED TO : Sujon Chandra Paul(FCA)
Associate Professor,
Department of Accounting and Information
Systems
University of Barishal
SUBMITTED BY :

NAME : Shaikh Mushfikur Rahman

ROLL : 20 AIS 037
DEPARTMENT : Accounting and Information Systems
SESSION : 2022-23
SEMESTER : First
YEAR : Fourth
DATE OF SUBMISSION : February 15,2024
Cost Classification
Introduction:
Cost classification is a method of categorizing expenses so they can be effectively communicated
on financial reports. Alright, this should be distinguished by six categories. Which are,

Cost Classification Depending on Nature

#The analytic classification depends on its nature. Hence there are three categories, material cost, labour cost
and other expenses. In addition, categorising in this manner helps monitor specific expenses of any work still
in progress.

Cost of Material: Direct/Indirect Raw material other components.

Cost of Labour: Salaries, Wages for the labour who are directly attributable with product.
Other Expenses: It includes administration, marketing/Distribution costs. Electricity, Gas, Telephone,
Salaries, other wages.

Cost Classification by Functions

#As the name suggests, this categorisation checks the basic administrative actions of any organisation.

Cost of Production: Raw material, Salaries/wages of Labour, Depreciation, other manufacturing

costs.

Administration costs: Salaries of the Employees, wages, Telephone, Gas, Electricity Bills, Building
Depreciation etc.

Marketing/Selling & Distribution

Costs: Individuals costs who directly connect with sells, Transportation,
Warehouse etc.
Cost Classification depend on Behaviour
#Cost classification is also done by segregating them as the following:

Fixed Cost: Rent, lease, and salaries those item which isn’t changes with the number/volume.
Variable Cost: Packaging charges, commissions, sells costs those changes with the number/volume.
Mixed Cost: Electricity, Building maintenance, management etc.
Step Cost: Expenses that are constant within a given level / Range. Including direct & indirect costs.

Cost Classification by Management Decision-Making

#In every company, those in managerial positions use money as a tool for their business growth. This may
include

Differential cost: Difference of two determination of relevant costs.

Sunk cost: Those cost which already occurred.
Abnormal Cost: Costs that doesn’t occurred regularly or two / three time in a operating
cycle.

Marginal Cost: The change in total production cost that comes from making or producing
one more unit.
Imputed Cost: Costs that doesn’t recorded including owner contribution to the company

Cost Classification by Production Process

#Companies that manufacture businesses use this technique. However, such companies need to follow specific
processes to launch their final product ultimately.
For example:

Process cost:
Batch cost: Cost of each batch, number of item together.
Contract cost:
Joint cost: The expense incurred by producers when creating more than one product or
process is referred to as the joint cost.

Cost Classification by Time

 Historical
 Pre-determined
 Standard Costs
 Estimated costs