Costing Classification

Essay text:

like purchasing, material handling and quality control • The sum of the above three cost is referred to as PRIME COST Non-Manufacturing Costs • It consists of: – Selling & Distribution Cost • Includes salaries and commission of sales personnel, transportation cost, warehousing cost, sales promotion cost, advertising cost etc. – Research & Development Cost • Represents the cost incurred for developing new products or processes, improving existing products or processes and searching for new knowledge • Are assuming greater significance with rapid changes in technology – Financial cost • Includes interest on different kinds of borrowing, commitment fees, guarantee fees and so on – Administration cost • Includes the cost of general administration and other costs which do not fit into any other category Service Costs • Costs of rendering a service to the customer • Service organization (Hotel, hospitals, Audit firms, educational establishment, software service firms etc) • Usually divided into five major components: – Service Labour • Represents the cost of employees engaged in rendering services to the customer • Includes- wages, perquisites, bonus and other types of compensation – This may be divided into: • Frontline Labour: Refers to employees who are directly involved in providing service to the customers • Support Labour: Refers to supervisory, administrative, and maintenance personnel who do not directly service the customer but provide support services to frontline labour Service Costs… – Materials & Supplies • Represent the cost of materials and supplies used for providing service • Eg: Food ingredients in a restaurant; Medicines and hospital supplies in a hospital; Books & Journals in a college; Floppies & Computer stationary in a software service firm – Occupancy Cost • Cost for using and maintaining the premises • Include rent, maintenance and repair, depreciation, utilities, security, insurance, property taxes and so on – Technology Cost • Costs relating to use of technology • Include items such as depreciation, maintenance, software packages, leased lines etc...