This document discusses cost accounting and its classification. It defines cost as a monetary valuation of efforts, materials, resources, time, utilities consumed, and risks incurred in business. Cost accounting provides detailed cost information to help management control operations and plan for the future. Costs are classified according to elements like materials, labor, and overheads, and according to behavior as fixed costs, variable costs, or semi-variable costs. Fixed costs remain unchanged with production volume while variable costs change directly with units produced and semi-variable costs have both fixed and variable components.

2. Cost Accounting &
its Classification
ON THE BASIS OF ELEMENT & BEHAVIOR

3. Presented to:
Mr. M. Aslam.
Presented by:
M. Sohail Amin
Topic:
Cost Acc. & Its Classification

4. Definition of Cost:

5. Cost Con’d…………
In business, cost is usually a monetary valuation of:
 Effort.
 Material.
 Resources.
 Time and utilities consumed.
 Risks incurred.

6. Cost Accounting:

7. Cost Accounting Con’d……..
 Its goal is to advise the management on the most appropriate course
of action based on the cost efficiency and capability.
 Cost accounting provides the detailed cost information that
management needs to control current operations and plan for the
future.

8. CLASSIFICATION OF COST:
There are different Classification of Cost:
 According to Elements
 According to Behavior.

9. According to Elements:
There are three types of Cost according to behavior, which are:
 MATERIALS COST.
 LABOUR COST.
 OVERHEADS.

10. MATERIALS COST:
Material cost is a Cost which is incurred on Purchase
of any type of material used in production.
There are two types of Material Cost:
 Direct Materials Cost. Is one which can be identified with and
allocated to cost units.” E.g., timber in furniture-making; clay in
brick-making; cement, stones, etc., in building.
 Indirect Materials Cost. Which cannot be allocated but which can be
apportioned to or absorbed by, cost units. For example, power, fuel,
repair and maintenance etc.

11. LABOUR COST:
The Labor Cost is the cost of remuneration (wages,
salaries, commissions, bonus, etc.) of the employees of
an undertaking.
There are two types of Labor:
 Direct Labor Cost. Direct Labor Cost are the cost which can be identified with
and allocated to cost units.
 Indirect Labor Cost. is one which cannot be allocated but which can be
apportioned to, or absorbed by, cost units.” e.g. Wages of indirect labor;
Wages of idle time.

12. OVERHEADS:
Overheads are the aggregate of the cost of indirect
material, indirect labor and such other expenses,
which cannot be conveniently charged direct to
specific cost units.

13. According to behavior:
There are three types of Cost According to Behavior:
 Fixed Cost.
 Variable Cost.
 Semi-Variable Cost.

14. Fixed cost:
 It mainly relates to time or period. It remains unchanged irrespective
of volume of production like factory rent, insurance, etc. The cost
per unit fluctuates according to the production. The cost per unit
decreases if production increases and cost per unit increases if the
production decreases. That is, the cost per unit is inversely
proportional to the production.

15. Fixed cost Con’d….
For example:
If the factory rent is Rs 25,000 per month and the number of units
produced in that month is 25,000, then the cost of rent per unit will be
Rs 1 per unit. In case the production increases to 50,000 units, then the
cost of rent per unit will be Rs 0.50 per unit.

16. Variable cost:
Variable cost directly associates with unit. It
increases or decreases according to the volume of
production.

17. Variable cost Con’d…….
For example:
Direct material and direct labor are the most common examples of
variable cost. It means the variable cost per unit remains constant
irrespective of production of units.

18. Semi-variable cost:
A specific portion of these costs remains fixed and
the balance portion is variable, depending on their
use.

19. Semi-variable cost Con’d……..
For example:
If the minimum electricity bill per month is Rs 5,000 for 1000 units and
excess consumption, if any, is charged @ Rs 7.50 per unit. In this case,
fixed electricity cost is Rs 5,000 and the total cost depends on the
consumption of units in excess of 1000 units. Therefore, the cost per
unit up to a certain level changes according to the volume of
production, and after that, the cost per unit remains constant @ Rs 7.50
per unit.

20. Attention Plz…………