Question

Write a memo to management detailing the various classification of costs and provide two reasons for which it is important to classify cost.at most 200 words

Answer 1

The various classification of costs:-
1)Based on variability
Fixed cost can be described as that value which continues uninterrupted as the output switches.
variable cost can be explained as which varies in the equivalent proportion in which the output varies.
Semi-variable cost comprises details of both fixed cost plus variable cost.
2)Based on function
Production cost is associated in providing the goods.
Administration cost is associated in the management and running of the company.
Selling cost is included in selling the goods to the to the ultimate customers.
Distribution cost is included in giving the goods to the different customers.
3)Direct and indirect nature of cost
Direct cost can be followed to a distinct goods. Thus direct cost/Tracible cost can be recognized with a appropriate goods and changes in the corresponding proportion in which that appropriate goods for which it has been acquired changes.
Indirect cost cannot be tracked to a distinct goods. It cannot be recognized with any appropriate product moreover doesn't make any difference in fixed proportion.
4)Based on period
Historical cost is the actual cost acquired in obtaining assets either constructing goods and services.
Pre-determined cost evaluated before rendering based on a spec of whole the circumstances influencing cost of that goods.
In Standard cost a deliberate model is practiced as a measure of a source for estimating the actual cost irrespective of the point whether those are larger or smaller.
Estimated cost of a goods are provided well in progress back
the execution of services or even before the approval of sale orders.
Important to classify cost are
Development of resources, benefits in anticipation of the budget of the company. During planning the budget of an association one must know how and whither? specifically the expenses have been acquired concerning producing the goods.
Helps in measuring efficiency, assists in estimating the effectiveness of the standard. The costs have been acquired and the amount of cost that has been acquired the capability of the organization can be sentenced.