Elements of production costs are
- Raw materials
- Direct wages
- Direct expenses
Overheads are the aggregate of indirect materials, indirect wages and indirect expenses. Materials of small values are treated as indirect materials. For example – the factory sweeper and attendants are indirect wages. Expenses of repairing the factory shed are indirect expenses.
Functional classification of costs is
- Production costs
- Administration costs
- Selling & distribution costs
- Research & development costs
Of course, administration, selling & distribution and research & development costs are all overheads in relation to cost of sales. We have already seen that part of production cost is an overhead which is called manufacturing overhead or production overheads.
Costs are also classified as per variability into
- Variable cost
- Fixed cost and
- Semi-variable cost
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