Professional Documents
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Comparing Merchandising
and Manufacturing Activities
Merchandisers . . . Manufacturers . . .
Buy finished Buy raw materials.
goods. Produce and sell
Sell finished goods. finished goods.
Shoppers Stop
Classification Of Cost
1. According To Nature
2. According to function
3. According To Identifiably
4. According To Behavior
5. According Association With Products
6. According to Controllability
7. According To Normality
8. According To Time
9. According To Relevance and
10.Other Costs
Classification Of Cost
Materials Labour
Expenses
Cost Cost
Cost Elements
2 According to functions
Administration
Cost
RD Cost
Classification Of Cost
3 According To Identifiably
Direct Indirect
Direct Costs and Indirect
Costs
Direct costs Indirect costs
Costs that can be Costs cannot be easily
easily and conveniently and conveniently traced
traced to a unit of to a unit of product or
product or other cost other cost object.
objective. Example:
Examples: direct manufacturing
material and direct labor overhead
Manufacturing Costs
The Product
Direct Materials
4 According To Behavior
Semi-Fixed
Fixed Variable Variable
Cost Classifications for
Predicting Cost Behavior
How a cost will react to
changes in the level of
business activity.
Total variable costs
change when activity
changes.
Total fixed costs
remain unchanged
when activity changes.
Total Variable Cost
Materials used
Variable Cost Per Unit
Materials Cost
Total Fixed Cost
Your fixed cost probably does not change
when you makeproduction.
Monthly Basic T Bill
Total production
Fixed Cost Per Unit
The average fixed cost per unit decreases as
more production is made.
production
Cost Classifications for
Predicting Cost Behavior
Variable Total variable cost changes Variable cost per unit remains
as activity level changes. the same over wide ranges
of activity.
Fixed Total fixed cost remains Fixed cost per unit goes
the same even when the down as activity level goes up.
activity level changes.
Quick Check
Product Period
Costs Costs
Quick Check
6 According to Controllability
Controllable Uncontrollable
Costs Costs
Classification Of Cost
7 According To Normality
Abnormal
Normal
Costs
Costs
Classification Of Cost
8 According To Time
Historical Pre-determined
Costs Costs
Classification Of Cost
9 According To Relevance
Opportunity Cost
Relevant Cost
Sunk Cost
Shut Down Cost
Differential Cost
Imputed Cost
Out-Of-Pocket Cost
Marginal Cost
Replacement Cost
Opportunity Costs
The potential benefit that is
given up when one alternative
is selected over another.
10 Other Costs
Avoidable
Costs
Conversion
Costs Unavoidable
Costs
TIME FOR QUESTIONS