Cost classification

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Basis of classification :

Nature of expense Functions / activities Behaviour Management decision making Production Process Time period.

By Nature of expense:

Costs should be gathered together in their natural groupings such as material, labour and other expenses. The elements of cost can be classified in the following three categories : i) Material ii) Labour iii) Expenses

By functions or activities

Costs should be classified according to the major functions for which the elements are used into the following four major functions : Production; Administration; Selling & Distribution; and Research & Development Expenditure.
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By its behaviour

Costs are classified based on behaviour as fixed cost, variable cost and semivariable cost depending upon response to the changes in the activity levels.

management decision making

Costs are classified for the purpose of management decision making under different circumstances as under :

Marginal cost Differential cost Opportunity cost Replacement cost Relevant cost Sunk cost Imputed Cost Normal cost Abnormal cost Avoidable cost Un-avoidable

By nature of production process

Costs are also classified on the basis of nature of production or manufacturing process. Batch cost Process cost Operation cost Contract cost Joint cost Operating cost
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Classification by time

Historical cost Pre-determined cost Standard cost Estimated cost