Related Courses. The cost of indirect material is not varying in direct proportion of product.
The uncontrollable cost is a cost that is beyond the control (i.e., uninfluenced by actions) of a given individual during a given period of time.The short-run costs are costs that vary with output when fixed plant and capital equipment remain the same and become relevant when a firm has to decide whether or not to produce more in the immediate future.The long-run costs are those which vary with output when all input factors including plant and equipment vary and become relevant when the firm has to decide whether to setup a new plant or to expand the existing one.The past costs are actual costs incurred in the past and are generally contained in the financial accounts. Classification based on traceability is important for accurate costing of jobs and units produced.
Segregation of costs into direct and indirect costs is essential for proper accounting and control of costs and also for managerial decision making purpose.Advanced manufacturing technologies such as Robotics, Computer Aided Design and Manufacture, Flexible Manufacturing Systems, Optimized Production Technology, Just-in-Time etc., are revolutionizing the manufacturing process at shop-floor, quality and creating areas for improved opportunities. Rent, rates, taxes, insurance, lighting, telephone, postage and telegrams, depreciation etc.
come under indirect expenses.Classifications are measured by the period of use and benefit.
Naturally historical costs must be adjusted to reflect current or future price levels.These costs relating to the product are computed in advance of production, on the basis of a specification of all the factors affecting cost and cost data. The nature and types of cost classification Costs can be classified in a number of different ways: By their behaviour.
An organization is divided into a number of responsibility centers and controllable costs incurred in a particular cost center can be influenced by the action of the manager responsible for the center. In this process the costs which are affected by the decisions are future costs. Capital expenditures are the benefits beyond accounting period. are considered as indirect materials.Sometimes indirect materials like coal, fuel used in kilns etc. The indirect costs are not traceable to any plant, department, operation or to any individual final product. Cost Classification by Time 4.
This classification is important as it helps to find out the total cost, how such total cost is constituted, and valuation of work in process.
Uncontrollable costs are those costs, which cannot be influenced by the action of a specified member of an undertaking, that is to say, which are not within the control of management.
Such costs may or may not include an element of overheads depending upon the type of costing system in force – absorption or direct. Product cost is associated with unit of output. The distinction between controllable and uncontrollable is sometimes left to the individual judgment and is not sharply maintained.
This distinction is important in costing as all items of revenue expenditure are considered for calculating the profit while capital items are normally ignored. Standard cost - predetermined cost based on some reasonable basis such as past experiences, budgeted amounts, industry standards, etc.
The elements that constitute the cost of manufacture are known as the elements of cost. These costs are partly fixed and partly variable. In a manufacturing concern, raw materials are converted into a finished product with the help of labour and other service units. Sunk-costs are always results of decisions taken in the past;-This cost cannot be changed by any decision in future. Costs of direct material, direct labour and direct expenses can be directly allocated or identified with particular cost centres or cost units and can be directly charged to such cost centres or cost units.The common costs cannot be allocated but which can be apportioned to cost centres or cost units. If the object of interest for identifying and measuring cost is to determine how much sacrifice is involved in manufacturing a particular product, then initially one can define the three elements of total cost i.e., materials, labour, and expenses.The direct costs are those which can be identified easily and indisputably with a unit of operation or costing unit or cost centre. 1. Fixed assets come under category of capital expenditure and maintenance of assets comes under revenue expenditure category.There are two categories under this classification:Under this category, the cost is divided by its function as follows:Under this category, the cost is divided as fixed, variable, and semi-variable costs: These costs include preliminary expenses, trail run costs etc.
Interest on capital is common type of implicit cost. These costs are also called ‘traceable costs’.The direct material costs are those which can be identified easily and indisputably with a unit of operation or costing unit or cost centre.
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