01

Classification
of Costs
Classification of Costs

Merchandising Sector
 Classification of Costs

COSTS CLASSIFIED BY TRACEABILITY

TO COST OBJECTIVE
Direct
Costs
• Costs of Producing goods and
services
• Costs involved with creating, developing,
and releasing a product.
EXAMPLES
Manufacturing Supplies, Equipment, Raw
Materials, Labor Costs, Production Costs
Indirect Costs

• These are costs not directly related to

the development of your business's
product or service
EXAMPLES
Utilities, Office Supplies, Office
Technology, Marketing Campaign,
Accounting and Payroll services, employee
benefit and perk program, insurance costs.
 Classification of Costs

COSTS CLASSIFIED BY COST

BEHAVIOR
Fixed
Costs
• Costs that remain the same amount
regardless how much the company produces
or sells.

EXAMPLES
Rent Expense, Salaries, Depreciation, Interest
Cost, Insurance, Maintenance, Repairs, office
supplies
Variable Costs

• These costs vary with the number of

products or services
EXAMPLES
Raw Materials, Labor Costs, Direct
Material, Sales Commisions
Let's try!
Exercise 3 Problem

Excellent Entertainment Center (EEC) operates a large store in San Juan City. The
stores have both a video section and a musical (compact disks, records, and tapes)
section. EEC reports revenues for the video section separately from the musical
section.

Required:
Classify each of the following cost items as:
• Direct or Indirect (D or I) costs with respect to the video section.
• Variable or Fixed (V or F) cost with respect to how the total costs of the video
section change as the number of videos sold changes. (If in doubt, select the cost
type on the basis of whether the total costs will change substantially if a large
number of videos are sold.)
Exercise 3 Table
Exercise 3 Table - Answers
Thank
you for
Listening!