Cost Accounting

Classification of costs and cost sheet

Md. Monowar Uddin Talukdar
Lecturer
Department of Business Administration
Khwaja Yunus Ali University

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Classification of costs and cost sheet:

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Classification of costs:
• Cost classification is the process of grouping costs according to their
common features or characteristics. Classification of costs is
necessary for detailed recording and accurate cost ascertainment.
Costs can be classified according to:
• Elements
• Functions
• Behabiour

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Classification on the basis of Element of
cost:
• A) materials cost
• B) Labour cost or wages
• C) Expenses
• 1. Direct expenditure in
• (a) Materials
• (b) Labour and
• (c) Expenses

• 2 Indirect expenditure in
• (a) Materials
• (b) Labour and
• (c) Expenses

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Function wise Classification
• Production Cost
• Administration Cost and
• Marketing Cost etc

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Behavior wise Classification:
• Variable cost
• Fixed cost, and
• Semi variable or Semi fixed costs

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Cost Centre:
• It is a location , person or item of equipment in respect of which costs
may be ascertained and related to cost units for control purpose.

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Cost Unit:
• For ascertainment of costs, it is necessary to express them in terms of
physical measurement like number, weight, volume, area, length or
any other convenient unit.
Industry Cost Units used
Furniture Number
Printing Job
Mines and quarries Ton
Chemicals Litters , gallons, kg , etc
Steel and cement Ton
Motor transport Ton miles, passenger miles
Canteen Meals, person
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Profit centre:
• Profit centre is the difference between revenues and costs. Therefore,
a profit centre represents segment of a business that is responsible
for both revenues and costs. This may also be called a business
centre.

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Investment centre:
• A investment centre is a responsibility centre that is accountable for
revenues, costs and investments.

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Relation among Cost Profit and
Investment centre:
• Cost centre: formal reporting of costs only.
• Profit centre: formal reporting of revenues and costs ; and
• Investment centre: formal reporting of revenues, costs, and
investment.

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Cost sheet:
• Cost sheet is a statement of cost incurred or to be incurred, for a
given volume of output or for rendering services.

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