This document classifies costs according to their function within an organization. It identifies the main classifications of costs as production costs, administration costs, finance costs, selling costs, distribution costs, and research and development costs. Production costs include direct costs like materials and labor as well as indirect costs like supervision salaries and quality control. Administration costs are general management expenses like office rent and salaries. Selling costs promote sales, while distribution costs deliver products to customers through transportation and warehousing. Research and development costs create new products and improve existing ones.

3. UNDER THE SUPERVISION OF:
SIR ASLAM WATTOO
MIHAJ UNIVERSITY LAHORE

4. CLASSIFICATION OF COST ACCORDING TO FUNCTION:
Costs can be classified based on functions or activities in an organization.
All the costs of a business can be classified into following classifications.
 Product ion costs.
 Administration costs.
 Finance costs.
 Selling costs.
 Distribution costs.
 Research and development costs.

5. PRODUCTION COST:
 All the costs relating to production of goods or services, whether direct or indirect.
Example of Direct Production Costs (also known as direct manufacturing
costs)
 Direct Raw Material
 Direct Labor
 Other Direct Expenses such job work charges relating to particular product, etc.


6.  Examples of Indirect Production Costs.
(also known as Production or Manufacturing Overheads).
 Salaries of Supervisors, Production Heads, Technical and Planning
Staff etc.
 Quality control costs.
 Other laborer related expenses.
 Store expenses etc.

7. ADMINISTRATION COSTS:
 These costs are incurred in connection to the general
management of the business.
 Salaries of staff in general management
 Office related expenses such as rent, rates, taxes, telephone,
stationery etc.
 Charges levied by bank
 Audit and legal fees
 Office related depreciation etc.

8. SELLING COSTS:
Selling costs includes all kinds of expenses incurred
for achieving sales of the products and services.
These are also considered indirect expenses known
as selling overheads.

9. DISTRIBUTION COSTS:
 Distribution costs includes all kinds of expenses are
incurred for distributing the products from its point of
production to its customers.
Examples of distribution costs are as follows:
 Transportation costs
 Warehouse rents
 Commission to Distribution channel etc.

10. RESEARCH AND DEVELOPMENT COSTS:
 Costs under these heads are the costs
comprising of development costs of new
products, improvement related expenses etc.