{"id":2763,"date":"2019-11-23T16:34:15","date_gmt":"2019-11-23T16:34:15","guid":{"rendered":"https:\/\/commerceiets.com\/?p=2763"},"modified":"2019-11-23T16:34:15","modified_gmt":"2019-11-23T16:34:15","slug":"types-of-cost","status":"publish","type":"post","link":"https:\/\/commerceiets.com\/types-of-cost\/","title":{"rendered":"TYPES OF COST"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_72 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-1'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/commerceiets.com\/types-of-cost\/#TYPES_OF_COST\" title=\"TYPES OF COST\">TYPES OF COST<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/commerceiets.com\/types-of-cost\/#There_are_various_types_of_cost_which_can_be_classified_on_various_bases_such_as_element_nature_variability_or_behavior_controllability_etc\" title=\"There are various types of cost which can be classified on various bases such as element, nature, variability or behavior, controllability etc.\">There are various types of cost which can be classified on various bases such as element, nature, variability or behavior, controllability etc.<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/commerceiets.com\/types-of-cost\/#1MATERIAL_COST\" title=\"1.MATERIAL COST\">1.MATERIAL COST<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/commerceiets.com\/types-of-cost\/#2LABOR_COST\" title=\"2.LABOR COST\">2.LABOR COST<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/commerceiets.com\/types-of-cost\/#3EXPENSES\" title=\"3.EXPENSES\">3.EXPENSES<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/commerceiets.com\/types-of-cost\/#1DIRECT_COSTS\" title=\"1.DIRECT COSTS\">1.DIRECT COSTS<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/commerceiets.com\/types-of-cost\/#2INDIRECT_COSTS\" title=\"2.INDIRECT COSTS\">2.INDIRECT COSTS<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/commerceiets.com\/types-of-cost\/#1FIXED_COST\" title=\"1.FIXED COST\">1.FIXED COST<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/commerceiets.com\/types-of-cost\/#2VARIABLE_COST\" title=\"2.VARIABLE COST\">2.VARIABLE COST<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/commerceiets.com\/types-of-cost\/#3SEMI_VARIABLE_COST\" title=\"3.SEMI VARIABLE COST\">3.SEMI VARIABLE COST<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/commerceiets.com\/types-of-cost\/#1CONTROLLABLE_COST\" title=\"1.CONTROLLABLE COST\">1.CONTROLLABLE COST<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/commerceiets.com\/types-of-cost\/#2UNCONTROLLABLE_COST\" title=\"2.UNCONTROLLABLE COST\">2.UNCONTROLLABLE COST<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/commerceiets.com\/types-of-cost\/#1NORMAL_OR_UNAVOIDABLE_COSTS\" title=\"1.NORMAL OR UNAVOIDABLE COSTS\">1.NORMAL OR UNAVOIDABLE COSTS<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/commerceiets.com\/types-of-cost\/#2ABNORMAL_OR_AVOIDABLE_COSTS\" title=\"2.ABNORMAL OR AVOIDABLE COSTS\">2.ABNORMAL OR AVOIDABLE COSTS<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/commerceiets.com\/types-of-cost\/#1PRODUCTION_COSTS\" title=\"1.PRODUCTION COSTS\">1.PRODUCTION COSTS<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-16\" href=\"https:\/\/commerceiets.com\/types-of-cost\/#2ADMINISTRATION_COSTS\" title=\"2.ADMINISTRATION COSTS\">2.ADMINISTRATION COSTS<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-17\" href=\"https:\/\/commerceiets.com\/types-of-cost\/#3SELLING_COSTS\" title=\"3.SELLING COSTS\">3.SELLING COSTS<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-18\" href=\"https:\/\/commerceiets.com\/types-of-cost\/#4DISTRIBUTION_COSTS\" title=\"4.DISTRIBUTION COSTS\">4.DISTRIBUTION COSTS<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-19\" href=\"https:\/\/commerceiets.com\/types-of-cost\/#1HISTORICAL_COSTS\" title=\"1.HISTORICAL COSTS\">1.HISTORICAL COSTS<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-20\" href=\"https:\/\/commerceiets.com\/types-of-cost\/#2PRE-DETERMINED_COSTS\" title=\"2.PRE-DETERMINED COSTS\">2.PRE-DETERMINED COSTS<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-21\" href=\"https:\/\/commerceiets.com\/types-of-cost\/#1MARGINAL_COST\" title=\"1.MARGINAL COST\">1.MARGINAL COST<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-22\" href=\"https:\/\/commerceiets.com\/types-of-cost\/#2SUNK_COST\" title=\"2.SUNK COST\">2.SUNK COST<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-23\" href=\"https:\/\/commerceiets.com\/types-of-cost\/#3OPPORTUNITY_COSTS\" title=\"3.OPPORTUNITY COSTS\">3.OPPORTUNITY COSTS<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-24\" href=\"https:\/\/commerceiets.com\/types-of-cost\/#4IMPUTED_COSTS\" title=\"4.IMPUTED COSTS\">4.IMPUTED COSTS<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h1 class=\"has-text-align-center wp-block-heading\" id=\"types-of-cost\"><span class=\"ez-toc-section\" id=\"TYPES_OF_COST\"><\/span>TYPES OF COST<span class=\"ez-toc-section-end\"><\/span><\/h1>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"there-are-various-types-of-cost-which-can-be-classified-on-various-bases-such-as-element-nature-variability-or-behavior-controllability-etc\"><span class=\"ez-toc-section\" id=\"There_are_various_types_of_cost_which_can_be_classified_on_various_bases_such_as_element_nature_variability_or_behavior_controllability_etc\"><\/span>There are various types of cost which can be classified on various bases such as element, nature, variability or behavior, controllability etc.<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">Cost refers to the expenditure incurred on producing the\ngoods and services. It represents the sacrifice, foregoing or a release of\nsomething of value.<\/p>\n\n\n\n<p class=\"has-pale-cyan-blue-background-color has-background has-medium-font-size\"><strong>ACCORDING TO ICMA (Institute of Cost and Management Accountants), London<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">\u2018Cost is the amount of expenditure (actual or notional)\nincurred on or attributable to a given thing.\u201d<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong><em>Example:<\/em><\/strong> In manufacturing of automobiles, the expenditure incurred on its spare parts, painting and finishing, design, etc constitute the cost of the automobile.<\/p>\n\n\n\n<p class=\"has-medium-font-size\">Thus, cost can be said as the measure of resources given up to achieve an objective.<\/p>\n\n\n\n<p class=\"has-medium-font-size\">The various types of cost are:<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"960\" height=\"720\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/11\/Slide2-4.jpg\" alt=\"TYPES OF COST\" class=\"wp-image-2765\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/11\/Slide2-4.jpg 960w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/11\/Slide2-4-300x225.jpg 300w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/11\/Slide2-4-768x576.jpg 768w\" sizes=\"auto, (max-width: 960px) 100vw, 960px\" \/><\/figure>\n\n\n\n<p class=\"has-text-align-center has-pale-cyan-blue-background-color has-background has-medium-font-size\"><strong>ON THE BASIS OF ELEMENT<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">On the bases of <a href=\"https:\/\/commerceiets.com\/elements-of-cost\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"element (opens in a new tab)\">element<\/a>, cost can be classified into three categories:<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"960\" height=\"720\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/11\/Slide3.jpg\" alt=\"\" class=\"wp-image-2767\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/11\/Slide3.jpg 960w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/11\/Slide3-300x225.jpg 300w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/11\/Slide3-768x576.jpg 768w\" sizes=\"auto, (max-width: 960px) 100vw, 960px\" \/><\/figure>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"1-material-cost\"><span class=\"ez-toc-section\" id=\"1MATERIAL_COST\"><\/span>1.MATERIAL COST<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">It refers to the cost of the material that is supplied to the manufacturing unit for producing the finished product. <em><strong>Example:<\/strong><\/em> Cost of thread, nails, shoe polish, leather supplied to an undertaking engages in production of shoes constitute material cost. <\/p>\n\n\n\n<p class=\"has-medium-font-size\">Material cost can be classified as follows:<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><em><strong>Direct material cost:<\/strong><\/em> Direct material cost is the cost of those materials that can be easily identifiable in the finished product. These costs can be attributable to the cost centers or cost units. The cost of such products is directly attributable to the cost of finished product.<\/p>\n\n\n\n<p class=\"has-medium-font-size\">Example: &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Cost of leather in shoes.<\/li><li>Cost of glass in mirror.<\/li><li>Cost of iron in machinery.<\/li><\/ul>\n\n\n\n<p class=\"has-medium-font-size\"><em><strong>Indirect Material Cost:<\/strong><\/em> Indirect Material Cost is the cost which is not directly attributable to the finished product. These costs are not absorbed or apportioned by the cost units or cost centers directly. The cost of such material is not traceable in the finished product. These costs can also be known as non-identifiable or hidden costs.<\/p>\n\n\n\n<p class=\"has-medium-font-size\">Example:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Cost of grease or lubricating oil used in\nmaintenance of machinery.<\/li><li>Fuel or electricity needed for generating power.<\/li><li>Materials consumed for repair work.<\/li><li>Dusters and brooms used for cleansing of\nfactory.<\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"2-labor-cost\"><span class=\"ez-toc-section\" id=\"2LABOR_COST\"><\/span>2.LABOR COST<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">Labor cost refers to the cost of remuneration of the workers\nemployed in an organization. It includes the amount of wages, salaries,\nperquisites, allowances etc.&nbsp; Labor cost\nis of two types:<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><em><strong>Direct Labor Cost: <\/strong><\/em>These are also known as direct wages. This cost can be identified with and allocated to cost centers or cost units. <\/p>\n\n\n\n<p class=\"has-medium-font-size\">In case of manufacturing concern, it includes the\nremuneration paid for converting the raw material into finished products or for\naltering the construction, composition or condition of the product manufactured\nby an undertaking.<\/p>\n\n\n\n<p class=\"has-medium-font-size\">Example: wages paid for spinning yarn in a spinning mill.<\/p>\n\n\n\n<p class=\"has-medium-font-size\">In case of service concern, direct labor cost refers to the\nwages paid to those who directly carry out or operate the service.<\/p>\n\n\n\n<p class=\"has-medium-font-size\">Example: wages paid to the driver and conductor of a bus.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><em><strong>Indirect Labor Cost:<\/strong><\/em> These are also known as indirect wages. It refers to that part of labor cost which is not directly attributable to the cost centers or cost units. These are not apportioned to or absorbed by the cost centers or cost units.<\/p>\n\n\n\n<p class=\"has-medium-font-size\">Example: Salary paid to the manager, Salary paid to the\nguard of the office.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"3-expenses\"><span class=\"ez-toc-section\" id=\"3EXPENSES\"><\/span>3.EXPENSES<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">Expenses refer to the cost of services provided to an\nundertaking and the notional costs of the use of the assets owned by the\nbusiness house.<\/p>\n\n\n\n<p class=\"has-medium-font-size\">Example: Deprecation on building, plant and machinery etc.<\/p>\n\n\n\n<p class=\"has-medium-font-size\">The expenses are of two types:<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong><em>Direct expenses: <\/em><\/strong>These expenses are also called chargeable expenses. These expenses can be directly identified to the cost centers or cost units. <\/p>\n\n\n\n<p class=\"has-medium-font-size\">Example: <\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Carriage and freight paid on direct materials\npurchased.<\/li><li>Import duty<\/li><li>Octroi duty etc.<\/li><\/ul>\n\n\n\n<p class=\"has-medium-font-size\">The aggregate of direct material cost, direct labor cost and\ndirect expenses is known as Direct Cost.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><em><strong>Indirect Expenses or Overheads:&nbsp;<\/strong><\/em> Expenses which cannot be allocated to the cost centers or units but can be apportioned by them are known as overheads or indirect expenses. <\/p>\n\n\n\n<p class=\"has-medium-font-size\">Example: <\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Rent, rates and taxes<\/li><li>Repairs to machinery<\/li><li>Factory lighting<\/li><li>Office lighting<\/li><li>Depreciation and insurance of showroom building\netc.<\/li><\/ul>\n\n\n\n<p class=\"has-medium-font-size\">The aggregate of indirect material cost, indirect labor cost\nand indirect expenses is known as Indirect Cost.<\/p>\n\n\n\n<p class=\"has-medium-font-size\">The indirect expenses or overheads can be further sub-divided into:<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"960\" height=\"720\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/11\/Slide10.jpg\" alt=\"overheads\" class=\"wp-image-2768\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/11\/Slide10.jpg 960w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/11\/Slide10-300x225.jpg 300w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/11\/Slide10-768x576.jpg 768w\" sizes=\"auto, (max-width: 960px) 100vw, 960px\" \/><\/figure>\n\n\n\n<p class=\"has-medium-font-size\"><strong>Factory overheads: <\/strong>It includes all the indirect costs incurred in factory in respect of manufacturing operations. It includes the cost of indirect materials and indirect labor.<\/p>\n\n\n\n<p class=\"has-medium-font-size\">Example: Cost of lubricating oil, coal, gas and fuel, wages\nof store-keeper, salaries of foremen, supervisors, factory rent etc.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>Office and Administration Overhead:<\/strong> It refers to the general expenses and expenses of administration and control of business. It includes all the indirect costs relating to direction, guidance, management, control and administration of business concern.<\/p>\n\n\n\n<p class=\"has-medium-font-size\">Example: Salary of general manager, insurance expenses,\noffice rents, office rates, office lighting etc.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>Selling and Distribution overheads:<\/strong> These include all the indirect costs which are incurred for <\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Promoting the sales <\/li><li>Retaining the customers<\/li><li>Providing after sale services to the consumers<\/li><li>Raising the market share of the concern. <\/li><\/ul>\n\n\n\n<p class=\"has-medium-font-size\">Example: Advertisement, salary of sales manager etc.<\/p>\n\n\n\n<p class=\"has-medium-font-size\">These costs play an important role in growing the business\nand its goodwill.<\/p>\n\n\n\n<p class=\"has-text-align-center has-pale-cyan-blue-background-color has-background has-medium-font-size\"><strong>ON THE BASIS OF NATURE<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">On the basis of nature, the costs are classified according\nto their identifiability with the cost units or cost centers. The types of cost\non the basis of nature are as follows:<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"1-direct-costs\"><span class=\"ez-toc-section\" id=\"1DIRECT_COSTS\"><\/span>1.DIRECT COSTS<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">These are the costs that are directly identifiable and\ntraced with the cost units or cost centers. Direct material cost, direct\nexpenses and direct labor cost are the constituents of the direct cost.<\/p>\n\n\n\n<p class=\"has-medium-font-size\">Example: Cost of iron in machinery, cost of leather in shoe\netc.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"2-indirect-costs\"><span class=\"ez-toc-section\" id=\"2INDIRECT_COSTS\"><\/span>2.INDIRECT COSTS<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">These are the costs that are not directly identifiable with\nthe cost units or cost centers. The indirect materials cost, indirect expenses\nand indirect labor costs are the constituents of indirect cost. <\/p>\n\n\n\n<p class=\"has-medium-font-size\">Example: Salary of workmen, salary of guard, fuel and power\ncost etc.<\/p>\n\n\n\n<p class=\"has-text-align-center has-pale-cyan-blue-background-color has-background has-medium-font-size\"><strong>ON THE BASIS OF VARIABILITY OR BEHAVIOR<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">The costs can be divided into three parts on the basis of\nchange in the volume of activity. The types of cost are:<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"1-fixed-cost\"><span class=\"ez-toc-section\" id=\"1FIXED_COST\"><\/span>1.FIXED COST<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">A fixed cost is a cost which is incurred for a particular period of time and which, within certain activity levels, is unaffected by changes in the level of activity. These costs mainly depends upon the effluxion of time and do not vary directly with the changes in the volume or output or sales. Example: rent of the building, insurance of the building etc.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"2-variable-cost\"><span class=\"ez-toc-section\" id=\"2VARIABLE_COST\"><\/span>2.VARIABLE COST<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">A variable cost is a cost which tends to vary with the level of activity. These costs tend to increase or decrease with the rise and fall in the production or sales. These costs vary in total but per unit cost remains the same. Example: cost of raw material used in producing finished product.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"3-semi-variable-cost\"><span class=\"ez-toc-section\" id=\"3SEMI_VARIABLE_COST\"><\/span>3.SEMI VARIABLE COST<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">This is the cost that contains both a fixed cost and a variable cost component. The part of semi-variable costs remains constant inspite of changes in the volume of output or sales, while the other part varies in proportion to changes in volume of output or sales. Example: Repairs and maintenance cost of plant, salary of supervisor etc.<\/p>\n\n\n\n<p class=\"has-text-align-center has-pale-cyan-blue-background-color has-background has-medium-font-size\"><strong>ON THE BASIS OF CONTROLLABILITY<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">As per this, the types of cost are:<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"1-controllable-cost\"><span class=\"ez-toc-section\" id=\"1CONTROLLABLE_COST\"><\/span>1.CONTROLLABLE COST<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">Each department in the concern is placed under the direct control of some supervisor. The costs associated with such departments are directly under the control of the supervisor, hence known as controllable costs.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"2-uncontrollable-cost\"><span class=\"ez-toc-section\" id=\"2UNCONTROLLABLE_COST\"><\/span>2.UNCONTROLLABLE COST<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">These refer to those costs which cannot be influenced by the action of a specified member of an undertaking.<\/p>\n\n\n\n<p class=\"has-text-align-center has-pale-cyan-blue-background-color has-background has-medium-font-size\"><strong>ON THE BASIS OF NORMALITY<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">As per this basis, the costs can be classified which are\nnormally occurred at a given level of output in conditions in which that level\nof output is normally attained. These costs can be:<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"1-normal-or-unavoidable-costs\"><span class=\"ez-toc-section\" id=\"1NORMAL_OR_UNAVOIDABLE_COSTS\"><\/span>1.NORMAL OR UNAVOIDABLE COSTS<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">These are those costs which are normally attained at a given level of output in the conditions in which that level of output is normally attained. These costs cannot be avoided at all. Example: Cost of normal spoilage of materials.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"2-abnormal-or-avoidable-costs\"><span class=\"ez-toc-section\" id=\"2ABNORMAL_OR_AVOIDABLE_COSTS\"><\/span>2.ABNORMAL OR AVOIDABLE COSTS<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">These are those costs which are not normally incurred at a given level of output in the conditions in which that level of output is attained. These costs can be avoided if proper care can be taken. Example: Cost of the material lost by theft.<\/p>\n\n\n\n<p class=\"has-text-align-center has-pale-cyan-blue-background-color has-background has-medium-font-size\"><strong>ON THE BASIS OF FUNCTION<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">The types of cost on the basis of function are:<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"1-production-costs\"><span class=\"ez-toc-section\" id=\"1PRODUCTION_COSTS\"><\/span>1.PRODUCTION COSTS<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The costs incurred on the production activity i.e. from acquiring the raw material and conversion into finished products. Example: Cost of packaging, Cost of labor etc.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"2-administration-costs\"><span class=\"ez-toc-section\" id=\"2ADMINISTRATION_COSTS\"><\/span>2.ADMINISTRATION COSTS<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The costs which are incurred for formulating the business policies for directing the organization and controlling the operations of an undertaking. These cots should not be related to the research and development purposes etc.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"3-selling-costs\"><span class=\"ez-toc-section\" id=\"3SELLING_COSTS\"><\/span>3.SELLING COSTS<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The costs incurred on selling the products are selling costs. Example: Cost on advertisement.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"4-distribution-costs\"><span class=\"ez-toc-section\" id=\"4DISTRIBUTION_COSTS\"><\/span>4.DISTRIBUTION COSTS<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The costs incurred on making the products available in the market are known as distribution costs. These costs are incurred on dispatching the products.<\/p>\n\n\n\n<p class=\"has-text-align-center has-pale-cyan-blue-background-color has-background has-medium-font-size\"><strong>ON THE BASIS OF TIME<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">From the point of view of time, the types of cost are:<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"1-historical-costs\"><span class=\"ez-toc-section\" id=\"1HISTORICAL_COSTS\"><\/span>1.HISTORICAL COSTS<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">These are the costs that are ascertained after they have been incurred. These are determined after the goods have been manufactured or services have been rendered. <\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"2-pre-determined-costs\"><span class=\"ez-toc-section\" id=\"2PRE-DETERMINED_COSTS\"><\/span>2.PRE-DETERMINED COSTS<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">These are the costs which can be computed in advance of production. These costs can be estimated costs or standard costs.<\/p>\n\n\n\n<p class=\"has-text-align-center has-pale-cyan-blue-background-color has-background has-medium-font-size\"><strong>ON BASIS OF RELEVANCE TO DECISION MAKING AND CONTROL<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">On this basis, the types of cost are:<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"1-marginal-cost\"><span class=\"ez-toc-section\" id=\"1MARGINAL_COST\"><\/span>1.MARGINAL COST<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">This is the amount at any given volume of output by which aggregate costs are changed if the volume of output is increased or decreased by one unit.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"2-sunk-cost\"><span class=\"ez-toc-section\" id=\"2SUNK_COST\"><\/span>2.SUNK COST<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">These refer to the costs which have already been incurred and cannot be altered by any decision in the future. These costs become irrelevant for later decisions.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"3-opportunity-costs\"><span class=\"ez-toc-section\" id=\"3OPPORTUNITY_COSTS\"><\/span>3.OPPORTUNITY COSTS<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">These are the cost of the best alternative foregone. It is measured in terms of revenue which could have been earned by employing the resources in some other alternatives uses.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"4-imputed-costs\"><span class=\"ez-toc-section\" id=\"4IMPUTED_COSTS\"><\/span>4.IMPUTED COSTS<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">These are those costs which are not included in the costs but are considered for making management decisions. These costs are hypothetical in nature. Example: Interest on capital, though not actually payable, is often required to be included in order to judge the relative profitability of two products involving unequal outlays of cash.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/cost-accounting\/\">Cost Accounting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/scope-of-cost-accounting-pdf\/\">Scope of cost accounting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/elements-of-cost\/\">Elements of cost<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/types-of-cost\/\">Types of cost<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/material-control-in-cost-accounting-pdf\/\">Material control<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/perpetual-inventory-system\/\">Perpetual inventory system<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/pricing-of-materials\/\">Pricing of materials<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/bin-card\/\">Bin Card<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/store-ledger\/\">Stores Ledger<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/incentive-plans\/\">Incentive plans<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/overhead\/\">Overheads<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/accounting-treatment-of-idle-time\/\">Idle time<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/system-of-wage-payment-in-cost-accounting\/\">System of wage payment in cost accounting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-time-rate-system-and-piece-rate-system\/\">Time rate vs piece rate wage system<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/cost-centre\/\">Cost Center<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/labor-turnover\/\">Labour Turnover<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/difference-between-management-accounting-and-cost-accounting\/\">Difference between management accounting and cost accounting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/allocation-and-apportionment-of-overheads\/\">Allocation and apportionment of overheads<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-allocation-and-apportionment-of-overheads\/\">Allocation vs Apportionment of overheads<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/absorption-of-overheads\/\">Absorption of overheads<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/over-absorption-and-under-absorption-of-overheads\/\">Over absorption and under absorption of overheads<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/activity-based-costing\/\">Activity based costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-traditional-costing-and-activity-based-costing\/\">Traditional costing vs ABC system<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/reconciliation-of-accounts\/\">Reconciliation of accounts<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/unit-costing\/\">Unit costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/cost-sheet-format\/\">Cost sheet format<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/cost-sheet-vs-production-account\/\">Cost sheet vs production sheet<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/job-costing\/\">Job costing<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/batch-costing\/\">Batch Costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-job-costing-and-batch-costing\/\">job costing vs batch costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/contract-costing\/\">Contract costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-job-costing-and-contract-costing\/\">Job Costing vs Contract costing<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/process-costing\/\">Process Costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/process-costing-vs-job-costing\/\">Process costing vs job costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/joint-products\/\">Joint products<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/by-products\/\">By Product&nbsp;<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/equivalent-production\/\">Equivalent production<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/marginal-costing\/\">Marginal costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/applications-of-marginal-costing\/\">Application of marginal costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/cost-volume-profit-analysis\/\">Cost volume profit analysis<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/tools-and-techniques-of-marginal-costing\/\">Tools and techniques of marginal costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/budget\/\">Budget<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/break-even-point\/\">Break even point<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/process-of-budgetary-control\/\">Process of budgetary control<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/explain-the-advantages-and-limitations-of-budgetary-control\/\">Advantages and limitations of budgetary control<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/budgetary-control\/\">Budgetary Control<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/zero-base-budgeting\/\">Zero base budgeting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/standard-costing\/\">Standard Costing<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/variance-analysis\/\">Variance Analysis<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-standard-costing-and-budgetary-control\/\">Standard costing vs budgetary control<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-management-accounting-and-cost-accounting\/\">Management accounting vs cost accounting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-financial-accounting-management-accounting-and-cost-accounting\/\">Cost accounting vs financial accounting<\/a><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link\" href=\"https:\/\/www.linkedin.com\/in\/kajal-mahajan-7549b2197\/\" target=\"_blank\" rel=\"noreferrer noopener\">CONNECT ON LINKEDIN<\/a><\/div>\n<\/div>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"512\" height=\"152\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-cropped-Presentation-resize-1.jpg\" alt=\"Difference between Financial Accounting Management Accounting and Cost accounting\" class=\"wp-image-4836\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-cropped-Presentation-resize-1.jpg 512w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-cropped-Presentation-resize-1-300x89.jpg 300w\" sizes=\"auto, (max-width: 512px) 100vw, 512px\" \/><figcaption>TYPES OF COST<\/figcaption><\/figure>\n","protected":false},"excerpt":{"rendered":"<p>TYPES OF COST There are various types of cost which can be classified on various bases such as element, nature, variability or behavior, controllability etc. Cost refers to the expenditure incurred on producing the goods and services. It represents the sacrifice, foregoing or a release of something of value. ACCORDING TO ICMA (Institute of Cost&#8230;<\/p>\n<p class=\"more-link-wrap\"><a href=\"https:\/\/commerceiets.com\/types-of-cost\/\" class=\"more-link\">Read More<span class=\"screen-reader-text\"> &ldquo;TYPES OF COST&rdquo;<\/span> &raquo;<\/a><\/p>\n","protected":false},"author":2,"featured_media":2764,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[187],"tags":[191],"class_list":["post-2763","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-cost-accounting","tag-cost"],"_links":{"self":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/2763","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/comments?post=2763"}],"version-history":[{"count":0,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/2763\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media\/2764"}],"wp:attachment":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media?parent=2763"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/categories?post=2763"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/tags?post=2763"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}