COST CLASSIFICATION

Before management accountants can classify Costs ,they need to consider how the management will use the information’s .Different cost concept and classification are used for different purpose.

Cost classification refers to the process of categorizing costs according to their nature or function within a business. This helps businesses to better understand their costs and make informed decisions about pricing, production, and profitability. There are several ways to classify costs, including

1- Behaviour : Fixed and variable costs:

Fixed costs are costs that do not change with changes in production levels, such as rent or insurance premiums. Variable costs are costs that change with changes in production levels, such as raw materials or direct labor.

2- Tracability : Direct and indirect costs:

Direct costs are costs that can be directly attributed to a specific product or service, such as the cost of raw materials or direct labor. Indirect costs are costs that cannot be directly attributed to a specific product or service, such as rent or overhead expenses.

3- ?Cotorllability : Controllable and uncontrollable costs:

Controllable costs are costs that can be influenced or controlled by management, such as direct labor costs or material costs. Uncontrollable costs are costs that cannot be influenced or controlled by management, such as taxes or interest expenses.

4- Manufacturing costs: Product costs :

Product costs are costs that are directly related to the production of a specific product or service, such as direct materials or direct labor.

5- Timing Expenses?: Period Cost

Period costs are costs that are not directly related to the production of a specific product or service, such as advertising or administrative expenses.