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Classifying costs the following is a list
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1.0 Purpose of Cost Classification Cost is known as monetary value that will contribute to the benefit or obtaining any other resources. In other words, cost is a resource that we sacrifice in order to capture profit in the business companies. As an example, we sacrifice electricity, material, labour and value of machine’s life which known as depreciation during the production of a car. Therefore, these sacrifices are known as cost. There are many different views or thoughts from different individual. From a buyer’s perspective, cost of an item or product is known as prices which are charged by the sellers that may include additional charges such as mark-up cost and production cost which make the products more expensive than the original prices …show more content…
On the other hand, from a seller’s perspective, cost is referring to the sum of money that is used in the production of goods and services. Sellers usually sell their products at a price which is higher than the production price to ensure that they are able to make profit through the sales. If they were to sell their products at the production price, then they will neither facing losses in their sales nor making profit from the sales. Basically, cost can be categorized under certain basis such as basis of variability, function, and time period, direct and indirect nature of cost. Therefore, this categorization is known as classification of cost. Cost classification in other words is the categorisation of costs based on their mutual characteristics. There are few purposes of cost classification in several factors, mainly production costs, cost …show more content…
It can be defined as basic or unprocessed substance used as an input in the process of production that transform from a natural substance to a finished goods. As an example, furniture is made of woods, clothes are made of cotton and soda can are made of aluminium. Basically, there are two types of materials in production, namely direct materials and indirect materials. 2.1 Direct Material Direct materials are resources that are used during the production of goods and it is directly linked to the product, while direct material cost is referring to the cost of raw materials used to manufacture a product. Those items which known as direct material is normally included in the file of the bill materials for a product. The bill of materials is the list of standard costs and unit of quantities of all materials used in the product as well as including the allocation of overhead. Direct materials do not take in materials that are used as one of the general overhead in a business. As an example, the air filters that are used in the ventilation system of a production facility are included in production overhead instead of direct materials. Alternatively, the cotton used to produce clothes and fabrics as well as the paper used to produce paper bags are known as direct materials. Referring to the cost classification, direct material is classified under product costs
The cost of the product manufactured in the industry are planned by the strategic managers, they planned according to the present strategy of the company and their rivals in the market. The cost leaders make the low price strategy when they having a huge demand on the product, as they reduce the price the demand of product increased. Then the market value of the product will be raised.
As high school students begin to look into getting a higher education, certain factors determine what college they may look into: locations, academic profile, graduation rate, school size, and, to some the most important, the cost of the university. The cost of a university can play one of the biggest deciding factors in furthering one’s education. Many students do not have hundreds of thousands of dollars for college. There are many poor people in this world who want to attend college and earn a degree to support themselves and their family and be able to live a more comfortable life. Everyone should have the opportunity to go to college. Every year, college prices are increasing, causing it to be less affordable. This will discourage people
Cost-plus pricing, it the industry pricing standard, and is a method to determine a price of the product by finding the cost per unit and then including a mark-up
The raw materials are then sent to the production shop to be processed in large containers and under certain conditions for product manufacturing. At this stage of the production cycle, high amounts of energy and water are consumed and wastes are generated. Most of the companies in the industry are aiming to reduce the consumption of energy and water, and production of waste with their sustainability programmes and
Raw materials are inventory items, which are going to be used by the manufacturer in the work process to create components, or for finished goods. These inventory items may be goods or obtained materials that the organisation has produced or extracted. These items may have also been purchased from outside of the company. Generally, these types of items are chemicals, paper, wood, paint, steel, food items etc. Work in process (WIP) includes all the components, assemblies and materials that are being processed or which are waiting to be processed. This inventory contains all materials, including raw materials which are going to be processed into a finished good which awaits approval. A finished good is a finalized product which is ready to be sold to customers. Consequently, a finished good inventory is a stock of finalized products. As mentioned before, these products have been through an inspection after the work in process and after approval, have been transferred to the FGs inventory. After this step, the finished goods can then be sold to wholesalers, retailers or directly to the customers. In the supermarket supply chain, all of the supermarkets such as Asda, Tesco, Waitrose etc. all have inventories mostly of finished goods, as they do not only sell the products of other manufacturers, but they
3) There may be many kinds of cost involved like the transaction cost(costs of using the market that are saved by centralized direction), inventories, labor cost and so on.
Target costing is a system under which a company plans in advance for the price points, product costs, and margins that it wants to achieve for a new product. If it cannot manufacture a product at these planned levels, then it cancels the design project entirely. With target costing, a management team has a powerful tool for continually monitoring products from the moment they enter the design phase and onward throughout their product life cycles. It is considered one of the most important tools for achieving consistent profitability in a manufacturing environment.
The principal elements that affect the costs of materials should be included in the organisation's overall budgetary controls. In addition, an organisation must also consider the cost of materials in relation to market demands, as these will inevitably cause periodic fluctuations in material costs. Only those materials that are actually used in the production of a product or service should be considered part of the cost of that product or service. Task 2 Page 2 Other consumables used by the organisation are classed as indirect costs and are considered under separate budgets. Indirect costs
A cost function is a mathematical formula used to calculate costs at a specific level of output. Firms may want to use a cost function so they are able to forecast their production expenses.
Price Based Theories - This first theory focuses on the classification and study of the quality price relationship. And this led to the initial conceptualization of value as a cognitive tradeoff between perceptions of quality and sacrifice. As per this view the external ques influence product quality and value. Various instances so offered by Agarwal and Teas (2001, 2002, 2004); Dodds and Monroe (1985); Dodds et al. (1991); Grewal et al. (1998a); Li et al. (1994); Monroe (1979, 1990); Monroe and Chapman (1987); Monroe and Krishnan (1985); Oh (2003); Teas and Agarwal (2000); Wood and Scheer (1996) state the importance of price which does a bearing on the marketability of a
An organization if not so conscious in costing the product which it is going to manufacture often spend more cost then may be needed for the production and ultimately it has to increase the sales price to obtain a reasonable profit. Otherwise it has to face the situation in which the costs are higher than the sales value and the result is loss. The loss suffering organization ultimately suffers the situation which is known as “Financial
Obtaining raw materials like fuel wood, charcoal, fertilizers, metals and minerals used for production of other materials
...ns and material necessary that need to be consumed during the business processes. The biggest part of this activity is contract and orders related to natural gas supply, purchase and modernization of pipelines, and machinery required for maintain good condition of pipelines. Company needs to predict when and what amount of natural gas needs to be transferred to meet consumer demand. Another important task of procurement is purchase of compressors required for steady flow of natural gas to end customers and the maintenance equipment required to ensure high efficiency and dependable. It is required for the company to properly plan all supply orders to lower variable costs and increase profits. Each activity level requires supply of specific materials unique for the processes and operations, which shows that procurement is present in every single stage of value chain.
These costs are on account with a specific work package. Direct costs are attributed to efforts made by the project manager, project team, and folks executing the work package. These costs signify actual outflow and are compensated as the project evolves. Examples of direct costs are labor, equipment, materials, and other (Gray & Larson, 2005).
To maintain a maximum, efficient level of raw material as well as lowest costs for production is essential for the production department.