Based on the following attributes, costs are classified:
By its nature, the cost is classified into material cost, labour cost and overheads cost which is further divided into raw material cost, consumables cost, packing costs etc.
On the grounds of degree of traceability, costs are divided into Direct and indirect costs. Direct expenses are those which directly attribute to a particular product. For instance, leather in shoe manufacturing is a direct expense and building rent, salaries are indirect expenses.
In this classification, two types of costs fall:
The period of use and benefit measures the classification such as capital expenditure and revenue expenditure. The current accounting period relates the revenue expenditure and the benefits beyond the accounting period refer to capital expenditure. Capital expenditure includes fixed assets and revenue expenditure includes maintenance of assets.
By associating with the products the costs are classified into:
The costs are divided in accordance with its functions such as:
Under this category, the cost is divided as fixed, variable, and semi-variable costs:
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