Basics of

Cost
Accounting

Fernando C. Fajardo Jr.

ManE 19-00224
8. Cost Classification
Cost classification is the logical process of
categorizing the different costs involved in a
business process according to their type, nature,
frequency and other features to fulfill
accounting objectives and facilitate economic
analysis. Cost refers to the value sacrificed with
the aim of gaining something in return. Every
business process involves some cost. It is the
basis of profit determination for an organization.
Basis of Classification
• Cost Classification by Nature
• Cost Classification by Relation of Cost Centre
• Cost Classification by Functions
• Cost Classification by Behavior
• Cost Classification by Management Decision
Making
• Cost Classification by Production Process
• Cost Classification by Time
• Material: material cost is the cost of the raw
material and its related cost such as procurement
cost, taxes, insurance, freight inwards, etc.
• Labour: labour cost is the salary and wages paid to
the employees, ie. Permanent, temporary or
contractual employees working in an organization. It
also includes PF contributions, bonus, commission,
incentives, allowances, overtime pay etc.
• Other Expenses: all the other overheads excluding
material and labour comes under this head. Some of
these are packaging, promotion, job processing
charges, etc.
Cost classification has simplified the work of
the management, accountants, economist,
researcher and many others. It facilitates the
process of cost control, cost reduction and
cost management.
9. Methods of Costing
1. Unit Costing
2. Job Costing
3. Contract Costing
4. Batch Costing
5. Operating Costing
6. Process Costing
7. Multiple Costing
8. Uniform Costing
10. Techniques of Costing
11. Specific Cost System
12. Cost Department and its
Relation with Other Departments
Cost accounting departments records, classifies and present
cost information for manufacturing and other activities of the
organization. It makes an analysis of cost of manufacturing,
marketing and administration and provides control reports and
other decision making data to all levels of management for the
purpose of controlling and reducing cost.

It is, therefore, necessary that cost accounting department

should have a proper coordination with other departments of
the organization. All departments should help each other so
that the objective of minimum possible cost may be achieved
without too many bottle-necks.
1. Cost Accounting and Production
2. Cost Accounting and Purchasing
3. Cost Accounting and Personnel
4. Cost Accounting and Finance & Accounts
5. Cost Accounting and Marketing
13. Installation of Costing
System