Take This Quiz & Predict Your Score in the coming CA CS or CMA Exam!
  • How important it is for you to pass the exam in this attempt?
  • What percentage of course you have finished well so far roughly?
  • How many hours you study in a day?
  • How many times you have revised the topics you have finished
  • Have you taken online or pen drive or live class from a renowned faculty?
  • What percentage of the classes you have watched?
  • Have you attempted mock tests or practice tests yet?
  • Are you planning to attempt mock tests conducted by external bodies- ICAI, ICSI, ICMAI or other institute?
  • How many tests you have taken?
  • Did you manage to finish the test papers on time?
  • Are you strictly following study material provided by the exam conducting authority such as ICAI/ICSI/ICMAI/Other Body?
  • How is your health in general?
  • How is your food habit?
  • Any interest in yoga or exercise or play sports regularly?
  • Planning to sleep well nights before the exams?
  • Planning to have light food and water before exams?

Cost and Cost Classifications

Cost and Cost Classifications


Cost and Cost Classifications

Cost is a sacrifice of resources to obtain a benefit or any other resource. For example in production of a car, we sacrifice material, electricity, the value of machine’s life (depreciation), and labor wages etc. Thus these are our costs.

Costs are usually classified as follows:

Product Costs Vs. Period Costs

Product costs are costs assigned to the manufacture of products and recognized for financial reporting when sold. They include direct materials, direct labor, factory wages, factory depreciation, etc.

Period costs are on the other hand are all costs other than product costs. They include marketing costs and administrative costs, etc.

Breakup of Product Costs

The product costs are further classified into:

  • Direct materials:Represents the cost of the materials that can be identified directly with the product at reasonable cost. For example, cost of paper in newspaper printing, cost of
  • Direct labor:Represents the cost of the labor time spent on that product, for example cost of the time spent by a petroleum engineer on an oil rig, etc.
  • Manufacturing overhead:Represents all production costs except those for direct labor and direct materials, for example the cost of an accountant’s time in an organization, depreciation on equipment, electricity, fuel, etc.

The product costs that can be specifically identified with each unit of a product are called direct product costs. Whereas those which cannot be traced to a specific unit are indirect product costs. Thus direct material cost and direct labor cost are direct product costs whereas manufacturing overhead cost is indirect product cost.

Cost and Cost Classifications

Also Read: Now you can e-Verify already uploaded Income Tax Return

Prime Costs Vs. Conversion Costs

Prime costs are the sum of all direct costs such as direct materials, direct labor and any other direct costs.

Conversion costs are all costs incurred to convert the raw materials to finished products and they equal the sum of direct labor, other direct costs (other than materials) and manufacturing overheads.

Cost Classification Diagram


Fixed Costs Vs. Variable Costs

Fixed costs are costs which remain constant within a certain level of output or sales. This certain limit where fixed costs remain constant regardless of the level of activity is called relevant range. For example, depreciation on fixed assets, etc.

Variable costs are costs which change with a change in the level of activity. Examples include direct materials, direct labor, etc.

Cost and Cost Classifications

Recommended Read: 

Sunk Costs Vs. Opportunity Costs

The costs discussed so far are historical costs which means they have been incurred in past and cannot be avoided by our current decisions. Relevant in this regard is another cost classification, called sunk costs. Sunk costs are those costs that have been irreversibly incurred or committed; they may also be termed unrecoverable costs.

In contrast to sunk costs are opportunity costs which are costs of a potential benefit foregone. For example the opportunity cost of going on a picnic is the money that you would have earned in that time.

Cost and Cost Classifications

download COST

At CAKART you will get everything that you need to be successful in your CA CS CMA exam – India’s best faculty video classes (online or in pen drive) most popular books of best authors (ebooks hard copies) best scanners and all exam related information and and chat with our counsellors any time. We are happy to help you make successful in your exams

Cost and Cost Classifications

Cost and Cost Classifications

At you will get  everything that you need to be successful in your CA  CS CMA exam. Deated by Puru Mishra, the Founder of  Suphalaam, Cakart was started in an interesting way.  Since 2011, Suphalaam had been providing e-learning  technology to many education players across India,  using the technology clients used to create and sell  video courses to the students.

Click here to download FREE CA CS CMA books.

Leave a comment

Your email address will not be published. Required fields are marked *