Types of cost

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1. TYPES OF COST

2. TYPES OF COST

3. MATERIAL COST It refers to the cost of the material that is supplied to the manufacturing unit for producing the finished product. Example: Cost of thread, nails, shoe polish, leather supplied to an undertaking engages in production of shoes constitute material cost.

4. MATERIAL COST DIRECT MATERIAL COST Direct material cost is the cost of those materials that can be easily identifiable in the finished product. Example: Cost of leather in shoes. Cost of glass in mirror. Cost of iron in machinery. INDIRECT MATERIAL COST Indirect Material Cost is the cost which is not directly attributable to the finished product. These costs are not absorbed or apportioned by the cost units or cost centers directly. Example: Fuel or electricity needed for generating power. Materials consumed for repair work.

5. LABOR COST Labor cost refers to the cost of remuneration of the workers employed in an organization. It includes the amount of wages, salaries, perquisites, allowances etc. Example: Salary paid to workmen Commission paid to agents

6. LABOR COST DIRECT LABOR COST These are also known as direct wages. This cost can be identified with and allocated to cost centers or cost units. Example: Wages paid for spinning yarn in a spinning mill. Wages paid to the driver and conductor of a bus. INDIRECT LABOR COST These are also known as indirect wages. It refers to that part of labor cost which is not directly attributable to the cost centers or cost units. Example: Salary paid to the manager, Salary paid to the guard of the office.

7. EXPENSES Expenses refer to the cost of services provided to an undertaking and the notional costs of the use of the assets owned by the business house. Example: Deprecation on building, plant and machinery etc.

8. EXPENSES DIRECT EXPENSES These expenses are also called chargeable expenses. These expenses can be directly identified to the cost centers or cost units. Example: Import duty Octroi duty etc . INDIRECT EXPENSES (OVERHEADS) Expenses which cannot be allocated to the cost centers or units but can be apportioned by them are known as overheads or indirect expenses. Example: Rent, rates and taxes Repairs to machinery Factory lighting

9. OVERHEADS

10. ON BASIS OF NATURE DIRECT COSTS These are the costs that are directly identifiable and traced with the cost units or cost centers. Direct material cost, direct expenses and direct labor cost are the constituents of the direct cost. Example: Cost of iron in machinery, cost of leather in shoe etc . INDIRECT COSTS These are the costs that are not directly identifiable with the cost units or cost centers. The indirect materials cost, indirect expenses and indirect labor costs are the constituents of indirect cost. Example: Salary of workmen, salary of guard, fuel and power cost etc .

11. ON THE BASIS OF VARIABILITY OR BEHAVIOR

12. ON THE BASIS OF CONTROLLABILITY CONTROLLABLE COSTS Each department in the concern is placed under the direct control of some supervisor. The costs associated with such departments are directly under the control of the supervisor, hence known as controllable costs . UNCONTROLLABLE COSTS These refer to those costs which cannot be influenced by the action of a specified member of an undertaking.

13. ON THE BASIS OF NORMALITY NORMAL OR UNAVOIDABLE COST These are those costs which are normally attained at a given level of output in the conditions in which that level of output is normally attained. These costs cannot be avoided at all. Example : Cost of normal spoilage of materials . ABNORMAL OR AVOIDABLE COST These are those costs which are not normally incurred at a given level of output in the conditions in which that level of output is attained. These costs can be avoided if proper care can be taken. Example : Cost of the material lost by theft.

14. ON THE BASIS OF FUNCTION

15. ON THE BASIS OF TIME HISTORICAL COSTS These are the costs that are ascertained after they have been incurred. These are determined after the goods have been manufactured or services have been rendered. PRE-DETERMINED COSTS These are the costs which can be computed in advance of production. These costs can be estimated costs or standard costs

16. ON THE BASIS OF RELEVANCE TO DECISION MAKING AND CONTROL