The Institute of Chartered Accountants of Bangladesh

(ICAB)

BUSINESS AND FINANCE

(CA Professional Stage Certificate Level)

Chapter-7
THE BUSINESS’S FINANCE FUNCTION
Part-01

Abdul Hamid, FCA

Email: ahamid1014@gmail.com
Cell Phone: 01755599931
The Business’s Finance Function
The Structure of the Finance Function

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Cost Terms, Concepts, and Classifications
A. General Cost Classifications
01. Manufacturing Costs:
a) Direct Materials
b) Direct Labour
c) Direct Expenses (if any)
d) Manufacturing Overhead
i) Indirect Materials
ii) Indirect Labour
iii) Indirect Manufacturing Overhead
e) Conversion Costs = Direct Labour Costs +Oerhead Costs
f) Prime Costs=Direct Material + Direct Labour

Manufacturing Cost

Manufacturing
Direct Materials Direct Labour
Overhead

Prime Costs Conversion Costs

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02. Non-manufacturing Costs
a) Marketing or Selling costs
b) Administrative Costs
c) Research and development cost

Nonmanufacturing
Costs

Research &
Markeing or Administrative
Development
Selling Costs Costs
Cost

03. Product Costs versus Period Costs

a) Product costs
I. Under direct costing system
II. Under absorption costing system
b) Period costs/Fixed costs (at a relevant range or activity level)

04. Cost Classifications for Assigning Costs to Cost Objects

I. Direct Cost (can be easily traced)

II. Indirect Cost (can’t be easily traced)

05. Cost Classifications for Decision Making/ Economic Characteristics of Cost

I. Differential Cost or Incremental Cost
II. Opportunity Cost
III. Controllable and Uncontrollable Cost
IV. Sunk Cost
V. Relevant cost
VI. Irrelevant cost
VII. Imputed cost

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C. Cost Classifications for Predicting Cost Behavior:
(a) Variable Cost total variable / but per unit fixed cost

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(b) Fixed Cost, total fixed (at a relevant range or activity level)/ but per unit variable cost

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(c) Mixed Cost Variable

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(d) Semi variable cost

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