Watever Case

a( 1 ) By nature:

Based on nature of major costs like material, labour and other expenses.

Material can be sub-classified into:

Raw material, semi-finished materials, components, consumables, maintenance materials

Labour can be sub-classified into:

Maintenance, supervision, clerical and others

Other expenses can be sub-classified into:

Rent, water, electricity and depreciation

(2) By Function:

Costs are classified by function to which they relate.

They are:

Production Costs:

All costs involved in the acquiring of raw materials to the delivery of finished goods to the warehouse.

For example, production overheads, direct materials, direct labour and direct costs.

Administration Costs

All costs involved in the general administration including managing the operations of the organization

For example:

Depreciation, Electricity and Audit fee

Marketing Costs

Costs incurred in securing orders, selling, advertising, promoting, distributing of the finished products

For example:

Salesmen salaries, commission and incentives

Samples, cost of advertisement, trade fairs, warehouse rent, transport costs and others

Finance Costs

Relate to the financing the activities of the business.

For example:

Overdraft interest, fixed term loan interest and commitment fees

Research Costs

Costs incurred in seeking new or improved ideas, designs, process/methods and new products

For example:

Cost of salaries of researches personnel, laboratory maintenance and cost of feasibility

Development Costs

Costs incurred in developing new or improved ideas, methods/process or new products so that production can take place.

For example:

Cost