Classification of Cost
Measuring costs requires judgment. That is why there are alternative ways in which costs can be defined
and classified Different companies or sometimes even different departments within the same company may define
and classify costs differently.
1. Costs in Relation to the Product
a. Manufacturing costs (Production costs) or Product costs
al. Under Normal Costs System:
1. Direct Materials
2. Direct Labor
3. Factory Overhead Applied (predetermined or estimated)
Under normal costs system, the actual incurrence of indirect materials, indirect labor and other production
costs (or factory costs) are recorded to Factory Overhead- Control.
Product costs are classified into two:
1. Prime Cost =
Direct Materials + Direct Labor
2. Conversion Cost =
Direct Labor + Factory Overhead
a2 Under Actual Cost System
1. Materials
2. Labor
3. Factory Overhead (other production costs)
b. Non-manufacturing costs or Period costs
1. Administrative or General expenses
2. Selling or Marketing expenses
II. Cost in Relation to Volume of Production
a. Variable costs
b. Fixed costs
c. Semi-variable or Semi-fixed costs
III. Cost in Relation to Types of Inventory
a. Materials Inventory
b. Work-in-process Inventory
c. Finished Goods Inventory
IV. Cost in Relation to Traceability to Cost Objective
a. Direct costs
b. Indirect costs
V. Cost in Relation to their nature as common or joint
a. Common costs
b. Joint costs
VI. Cost in Relation to the Nature of Expenditures
a. Capital expenditures
b. Revenue expenditures
VII Cost in Relation to Period of Incurrence
a. Historical costs
b. Future costs
VIII. Cost in Relation to Managerial Influence
a. Controllable costs
b. Non-controllable costs