# Accounting Assignment Help With Understanding Cost

## What do you mean by costs?

Cost concept or also called as the estimated costs concept is used for the deduction and analyzing the price and cost for a project which runs in a shot run or the long run. Cost is actually the value of the money which is extensively used in the production process. Costs the term which is used in across many fields similarly. It is used in the retailing, accounting, research and production. The business firms also use this term to when a certain amount of money is used to cover the expenses for the production. In this type of scenarios, the money acts as the input which is spent to acquire an asset or clear off a liability. The price of the product is the additional profit margin incurred upon the cost.

## What do you mean by Cost classification?

Cost classification is basically the process of merging and grouping of different costs as per their common characteristics, which later helps in identifying them. It is the detailed process of classification of the costs which are written in the accounting books and is eventually very important to follow up in order to mainly identify the main cost of the goods or services produced with the cost units and cost centers. The costs are classified and differentiated as per various elements such s their nature, material, expenses, raw materials used to make up and labor. A number of characteristics are also used to classify them. It is same with the cost figures which are classified as per the different ways of incurring costs which depends upon the sole purpose which is to be achieved is to have profit maximization and also for the requirements for a particular concern.

## What are the different ways of classifying costs?

There are many ways by which costs can be classified, these are:

### 1. Nature or analytical classification:

By this it means that h costs are equally divided into three sub-categories namely labor, expenses and materials. A further deep sub-classification will reveal even more elements such as materials include raw materials and these raw materials are used to make up the spare parts. This is one of the major classification elements which is kept in mind before classifying costs. This element helps easily to find out the total cot which is constituted and have a valuation progress.

### 2. Functioning:

As per this classification, the costs are simply divided with the light of the different aspects which are of basic managerial activities constituting the activities of the business firm. These activities are a part of the operation conducted by a business undertaking. This classification leads to the grouping of various costs under one category in accordance to the broad divisions or also called as the functions of a company undertaking which is primarily the administration, selling, production and distribution. According to the Function classification, it is divided into furthermore two categories which is

• Manufacturing costs or also called as the production cost, it I basically the sum total of all the primary costs involved in the process of manufacturing, fabrication and construction of units of production.
• Commercial cost or also called as the external costs is basically the sum of costs which is incurred primarily in the operation of a particular business undertaking offered by the industry and is comparatively higher than the cost of manufacturing and production. There are two types of commercial costs, namely selling and distribution costs and administrative costs.

### 3. Degree of Traceability to the product

As per this classification of costs, the total cost is divided into two separate categories which is direct costs and indirect costs. Indirect costs are those costs, which is spent as per the cause of benefit of a number of other cost units or the cost centers which cannot be identified conveniently with a single different cost center or cost unit. For example, rent of building, machinery depreciation, management salaries etc. On the other hand the, direct costs refers to the costs which are directly incurred for the charge taken for a particular piece of cost unit or cost center. Materials Which are used and labor which are employed in a process of manufacturing a good or a service or in a particular process of production are some of the common examples of direct costs. The nature of the business and the cost center chosen will only determine which of the costs are direct and which of those are indirect.

Cost accounting and classification arouses many confusions and doubts which will lead to a negative way for the students. Our tutors which we provide will ensure that all these doubts are gone. Our tutors are highly professional degree holders and also provide with extra tuitions and notes on the subject for making it more understandable to the student. Our services are always available.

## What are the different nature of costs?

The cost of any commodity or service is distinguished on the basis of its nature, these are

### 1. External costs

These are the costs which the external parties other than the own buyer has to pay when the transaction is done by the buyer. The external parties who bear such expenses are either some particular individuals or a large society. Sometimes, the external costs are not monetary and are non-monetary which leads to quantification of the costs.

### 2. Social costs

Social costs are basically the total sum of the external costs as well as the private costs. These are more of the private costs plus the external costs. A theory suggests that the buyers only consider the cost which they have to bear by themselves but donâ€™t even think about the ones that are borne by the others.

### 3. Private costs

These are the exclusive costs which the buyer of any good or service pays the seller. These costs are permanent incurred and doesnâ€™t include any third parties. A certain price, which is set by the seller is paid by the buyers for the purchasing of desired goods or services.

### What are the different types of costs?

There are different types of costs which help us to differentiate between the costs, these are:

#### 1. Fixed costs or Total Fixed costs

Fixed costs are the costs which does not change with the level of production undertaken by the business firm. Fixed costs are independent of the output generated. Some examples of fixed costs are: Depreciation, Interest rates and Taxes. Total fixed costs are the costs which are associated with the fixed input in a production process. On the other hand, average fixed cost refers to the per unit cost of an output in production.

#### 2. Variable costs or Total variable costs

Variable costs are basically the costs, which are rest of the total cost of the production process. This part is that varies with the production as you produce more goods or less. Output is the element on which the variable costs solely depends. Total Variable cost are the costs which are associated with the variable inputs in a production. On the other hand, the average variable cost is the cost per unit of an output.

#### 3. Total costs

Total costs are the sum of all the costs which is incurred in a production process, this includes the total fixed costs and the total variable costs. Average total cost on the other hand mentions the sum of average fixed cost and average variable cost.

#### 4. Marginal cost

Marginal cost is the cost which is incurred when an additional cost is incurred when producing an additional unit of output in a production. Marginal cost is basically, total cost divided by the output.

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