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Cost classification

Function nature

Behaviour

elements

Cost centre is related to every Cost

Profit centre is related to any income _ expenses

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Cost by Nature:

direct cost are anything directly involved with the manufacturing or production of product. I.e

Indirect: anything direct cost. I.e

Cost by element: fix cost, labour cost and overhead cost.

Variable cost changes with the level of activity

Cost centre: deals with everything to do with expenses

Revenue centre: involves income

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Costing is calculation of value,how much

the produced items cost.

We can clasificated cost by elements to :

materials,labour,overheads

By nuture to:

Direct and indirect

By behuivers to:

Fixt,variable,semi-variable,stteped

And by functions:

Financial,production,administrative,HR

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Financial accounting is for records already happened, management accounting is to plan and budget, so it's about the future transactions. Costing is management accounting. There are production costs and overheads. Costs can be direct or indirect by nature. There can also be material costs, labour and expenses. Also by behaviour they can be fixed, variable, semi-variable and stepped. Fixed costs' unit price will be variable, variable costs' unit price will be fixed.

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Difference between financial accounting (deals with external groups : financial statements, invoices, credit notes etc) and management accounting (deals with internal groups, prepares and monitors budgets)

Cost classification:

-by element

-by nature

-by behaviour

-by function

Using the high low method for finding if the cost is semi-variable

About cost groups :

- cost centres

-profit centres

- investment centres

Total fixed cost does not not change irrespective of the activity level

Fixed cost per unit changes if the activity level changes

Total variable cost changes if the activity level changes

Variable cost per unit does not change irrespective of the production level

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I'm sorry. I felt unwell and dizzy.

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Cost classification- function, nature, behaviour, element

Cost/revenue/profit/ investment centres

Fixed cost- same total

Variable- same unit cost

Semi- neither same total or per unit cost but rises at a steady increment

Stepped- behaves like fixed until a certain level of output, then sharp increase

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Cost behaviour refers to how costs change in response to changes in activity levels like production or sales volume:

Fixed cost -don’t change with activity

variable cost-change with activity

semi-variable cost-have both fixed and variables parts.

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During the previous lesson (2 weeks ago) we've learnt about cost classification (by nature, by element, by function).

Also about Direct and indirect costs;

There are three industries (manufacturing, service, retail)

I find that I Will require further revision.

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Fixed cost, variable cost, semi variable cost, stepped cost.

Cost by function

Cost by nature

Direct= raw material cost and indirect like rent types of cost

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Financial accounting - past transactions, information to the outside of the organisation, financial statements. Management accounting helps with decision making, obtains information about cost, helps internally. Classification of cost: 1. by element - material, labour, overheads, 2. By nature: direct, indirect. 3. By behaviour: fixed, variable, semi-variable, stepped.

High-low method.

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Different cost classification

By nature: direct and indirect cost

By element: raw materials, labour

By behaviour: fixed, variable, semi-variable

High low method to calculate the fixed cost and variable cost in semi-variable cost.

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What management accounting does

Financial accounting vs management accounting

cost classifications by nature, by behaviour and by element.

High-low method

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Fixed cost can be direct cost and can be attributed to units of output but it doesn’t change as output change

Product cost is directly attributed to the cost of manufacturing production

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Direct and indirect costs

Direct - material and labour used in direct production of products eg flour for bread and bakers wages

Indirect - expenses such as shop rent and electricity bill, also indirect labour and materials eg cleaning supplies and repairman

Types of cost

By nature

By element

Fixed, variable, semi variable & stepped

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Cost classification

Indirect and direct

Fixed and variable cost