Introduction to Classification of Costs
A significant step in computation and analysis of cost is the categorization of costs into various types. Classification assists in better control of the costs and also assists significantly in decision making. Classification of costs can be made as per to the following basis.
A. Classification according to elements
Costs can be categorized as per to the elements. There are 3 elements of costing that are material, labor and expenses. Total cost of production or services can be split into the three elements to observe the contribution of every element in the total costs.
B. Classification according to nature
According to this classification, costs can be categorized into Direct and Indirect. Direct costs are the costs that are identifiable along with the product unit or cost center when indirect costs are not identifiable along with the product unit or cost center and therefore they are to be allocated, allocate and then absorb in the production units.
C. Classification according to behaviour D. Classification according to functionsE. Classification according to timeF. Classification of costs for Management decision making
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