Essay About Nature Of Major Costs And Production Costs

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a( 1 ) By nature:
Based on nature of major costs like material, labour and other expenses.
Material can be sub-classified into:
Raw material, semi-finished materials, components, consumables, maintenance materials
Labour can be sub-classified into:
Maintenance, supervision, clerical and others
Other expenses can be sub-classified into:
Rent, water, electricity and depreciation
(2) By Function:
Costs are classified by function to which they relate.
They are:
Production Costs:
All costs involved in the acquiring of raw materials to the delivery of finished goods to the warehouse.
For example, production overheads, direct materials, direct labour and direct costs.
Administration Costs
All costs involved in the general administration including managing the operations of the organization
For example:
Depreciation, Electricity and Audit fee
Marketing Costs
Costs incurred in securing orders, selling, advertising, promoting, distributing of the finished products
For example:
Salesmen salaries, commission and incentives
Samples, cost of advertisement, trade fairs, warehouse rent, transport costs and others
Finance Costs
Relate to the financing the activities of the business.
For example:
Overdraft interest, fixed term loan interest and commitment fees
Research Costs
Costs incurred in seeking new or improved ideas, designs, process/methods and new products
For example:
Cost of salaries of researches personnel, laboratory maintenance and cost of feasibility
Development Costs
Costs incurred in developing new or improved ideas, methods/process or new products so that production can take place.
For example:
Cost