Skip to main content

What are the types of cost and its classification in Cost Accounting?

 Cost Accounting helps to determine the total cost of production by ascertaining the different cost like fixed cost variable cost etc.

Cost is divided into three parts that is:

  • Material cost
  • Labour Cost 
  • Expense cost
Material cost: It is a cost used to purchase raw material to manufacture goods. It is divided into two parts that is direct cost and indirect cost.
  • Direct cost: It is a cost directly related to the production of goods. for example cement is use for construction work, timber is used for furniture etc.
  • Indirect cost: It is a cost indirectly related to the production of goods. for example repairing cost of factory machine etc.
 Labour cost: It is cost paid as a wages to the workers of factory. It is also divided into two part that is direct cost and indirect cost.
  • Direct cost: It is a cost which is paid to workers who directly related to the production activity. for example workers who are working on timber to make a furniture.
  • Indirect cost: It is a cost which is paid to employees who work on factory but not engaged to manufacture a goods for example store keeper, cleaning staff etc.
Expense cost: It is a cost associated with office and administrative work and selling and distribution of goods and services.It is also divided into two parts that is direct cost and indirect cost.
  • Direct cost: It is an expense which are directly related to production of goods and services. For example exercise duty, rent on machine, royalty etc
  • Indirect cost: It is an expense which are indirectly related to production of goods and services. In other words those expenses which are not incurred for particular job even it incurred for whole production process. For example electricity bill, stationery for work etc.
Classify according to variability:
  • Fixed cost
  • Variable cost
  • Semi - variable cost
Fixed cost: It is a cost which is fixed and  the total fixed cost does not change with change in output level. Fixed cost per unit is inversely related to  volume of output.For example lease,rent on machine, insurance, depreciation etc. 

Variable cost: It is a cost which changes with change in out put level. Variable cost is directly related to output level. It means if production level increases 3 times than the variable cost will also increases 3 times and if the output level half decreases then the variable cost will also decreases in half. The total cost of variable varies with output level but the per unit cost of variables does not change. For example cost of raw material, commission etc 

Semi variable cost:It is a cost which is partially fixed and partially variable. It includes both fixed and variable cost. For example electricity bill etc.

Other cost:

Sunk cost: Those cost which is incurred and never going to recover. For example you never get your money from bankrupt company, spending money for marketing but the result is not het as expected that money known as sunk cost.

Accounting cost: It is a cost of an activity. To know the cost of producing a goods accounting cost is used which includes fixed cost and variable cost.

Comments

Post a Comment

Popular posts from this blog

How to calculate Cost of Preference Share Capital?

Cost of Preference Share Capital:  An amount paid by company as dividend to preference shareholder is known as Cost of Preference Share Capital. Preference share is a small unit of a company’s capital which bears fixed rate of dividend and holder of it gets dividend when company earn profit. Dividend payable is not a tax deductible amount. So, there is no tax adjustments required for comparing with cost of debt. Formula for Cost of Preference Share: Irredeemable Preference Share Redeemable Preference Share K p  = Dp/NP K p  = D p +((RV-NP)/n )/ (RV+NP)/2 Where, K p  = Cost of Preference Share D p  = Dividend on preference share NP = Net proceeds from issue of preference share (Issue price – Flotation cost) RV = Redemption Value N = Period of preference share Example:  A company issues 20,000 irredeemable preference share at 8% whose face value is Rs.50 each at 4% discount. Find out the Cost of Preference Share Capital.
88 comments
Read more

What is the difference between Cheque book and Pass book?

 Cheque book is issued by bank in customers / account holder request. With the help of this book account holder can withdraw cash from his/her account. Bank does not charge any fee to issued cheque book to its customer. But afterward bank charges some amount for using bank facility like cheque book, Debit card etc.So, Automatic some definite amount deducted from customer bank account. Pass book is  also issued by bank to its customer. It helps to record all the bank related activity according to date that is withdrawal and deposit. It is recorded by bank but the book is kept by customer to know the current balance of  his /her account.  Point of difference Pass book Cheque book What is the meaning of pass book and cheque book? Passbook is a book in which all withdrawal and deposit against customer account is recorded.   Cheque book is a book of cheques which are used to withdrawal the money to bank account.
Post a Comment
Read more

How to calculate interest on Hire Purchase System?

Interest on hire purchase:  Interest is calculated on Cash value of goods not in instalment value which includes cash value of goods and interest amount. It is calculated on yearly, quarterly and yearly basis. Interest is not calculated on down payment which is paid at delivery of goods. Depreciation is also charged on the hire purchase goods at the end of financial year. The method applies for depreciation is based on the contract between the parties.   Example:  Company V purchased a machine of Rs.70, 000 and paid Rs.5, 000 as down payment. The interest charged @6% and 8% depreciation annually. The instalment value for each year is Rs. 10,000. Find out the interest amount for 5 years. Solution: Interest calculated on Rs. Interest Instalment Cash Value 65, 000 65, 000*0.06 = 3, 900 12, 500 8, 600 56, 400 56, 400*0.06 = 3, 384 12, 500 9, 116 47, 284 47, 284*0.06 = 2, 837 12, 500 9, 6
3 comments
Read more