* Definition: Cost management generally describes the approaches and activities of man agers in short run and long

run planning and control decisions that increase val ue for customers and lower costs of products and services. Features of cost management: * It focuses on cost reduction and continuous improvement and change rather than cost containment. * The planning and control of costs is usually inextricably linked with revenue and profit planning. * Cost management is not practiced in isolation. Classification of costs: * Nature of element * Functions * Identifiability * Variability * Controllability * Normality * Financial accounting treatment * Time * Association with the product * Planning and control Nature of element * Material: physical or tangible inputs which go into manufacture of any product or rendering of services. * Labor: human effort that goes into the production of goods * Overheads: All other items other than material and labor come under this class . Function Manufacturing and production cost: All cost incurred from the time of procurement of material to the finish ed goods. Administrative cost: cost pertaining to any activity comprised in the administrative function of a business organization. Selling and distribution cost: Selling cost are the cost of promoting the product and service, building up brand equity etc Distribution cost are the cost associated with the activity of making goods or services physically available to the consumer. Total Cost Production Cost Administration Cost Selling Cost Distribution Cost Research & Development Identifiability Cost unit or cost object: it is an entity, object: object or activity for which we determine cost Direct cost: cost that can be readily and specifically identified with the cost object. Indirect cost: cost that cannot be readily and specifically identified with the

cost object. Variability Fixed cost: remain fixed irrespective of the level of activity. Variable cost: vary in direct proportion to the volume of output. Semi-variable cost: partly fixed and partly variable. Controllability * Controllable cost * Uncontrollable cost Normality Normal cost Abnormal cost Time * Historical cost * Predetermined cost: serve as a tool for cost control, cost reduction and cost analysis. Association with product * Product cost * Period cost Planning and control * Budgeted cost: cost that represents an estimate of expenditure. * Standard cost: predetermined cost based on a technical estimate of material, l abor and overhead for a selected period of time and a prescribed set of working conditions. Cost and managerial decision * Marginal cost: cost incurred for producing an additional unit * Out- of-pocket cost: cost that results in cash outflow * Differential cost: change in cost due to change in level of activity, pattern or method of production * Sunk cost: cost that has already been incurred * Imputed or notional cost: these cost do not entail actual cash outflow from th e business to a third party * Opportunity cost: cost of next best alternative foregone * Replacement cost: cost of replacing an asset or material at its present condit ion * Avoidable and unavoidable cost: those which can be avoided or unavoided becaus e of a particular decision. * Future cost: all cost that are expected at a future date * Programmed cost: cost that are attributable to major policy decision taken by the top management from time to time * Conversion cost: cost incurred in converting raw material into finished goods * Committed cost: cost that has been committed due to decision taken by manageme nt in the past * Discretionary cost: cost whose contribution to revenue or profit cannot be con clusively established * Joint cost: cost incurred till the point of different products become separate ly identifiable