Cost Concepts,

Classifications, Behavior,
and Applications
Basic Foundation of Management Accounting
Cost, defined
• Value forgone or sacrifice of resources to achieve
economic benefits that promotes profit making
Cost pool
• Costs collected into meaningful groups
• By type of cost
• By source
• By responsibility
Cost object
• Any product, services or organizational unit to
which cost are assigned for management purpose
Cost drivers
• Any factor that affects the level of total cost
Classifications of cost
A. By nature or function
1. Manufacturing costs
a) Direct materials
b) Direct labor
c) Manufacturing overhead
• Indirect materials
• Indirect labor
2. Nonmanufacturing costs
a) Selling costs
b) Administrative costs
Classifications of cost
B. According to timing of recognition as expense
1. Product costs
2. Period costs
C. On financial statement
1. Balance sheet
2. Income statement
D. For predicting cost behavior
1. Variable costs
2. Fixed costs
3. Semi-variable costs
Classifications of cost
E. By types of inventory
1. Raw materials inventory
2. Work-in-process inventory
3. Finished goods inventory
F. According to traceability to cost object
1. Direct costs
2. Indirect costs
G. According to managerial influence
A. Controllable costs
B. Non-controllable costs
Classifications of cost
J. For planning and control
1. Standard costs
2. Budgeted costs
3. Absorption costing
4. Direct costing
5. Information cost
6. Ordering cost
7. Out-of-pocket costs
K. According to a time-frame perspective
1. Committed costs
2. Discretionary costs
Classifications of cost
A. According to time period for which the cost is
incurred
A. Historical costs
B. Future costs
B. For decision-making and other analytical purposes
A. Relevant costs
B. Incremental costs
C. Sunk costs
D. Opportunity costs
E. Marginal costs
F. Value-added costs