Functional Classification of Costs
Beneath this classification, costs are classified according to the function they execute in an organization. Costs can functionally be classified like:
a) Production Costs: Are all the costs incurred in production of units throughout a time period as like an example of raw material costs, and production overheads and direct labour costs.
b) Administration Costs: These are all costs incurred in making sure the smooth running of the organization so like to facilitate the production and sale of services and goods. These involve: salaries for the managers, salaries for support staff like accountants, and secretaries and clerks
c) Distribution and Selling Costs: These are costs such are incurred to enable the delivery of products and services to the real markets and complete or promote a sale. These costs include: saleswoman salaries, salesmen commission, advertising costs, depreciation on motor vehicles utilized through salesmen, the cost of fuel utilized through vehicles utilized for distribution reasons etc.
d) Other functional classifications