Introduction to Costing
Let’s learn more about costing. The motive of an organization is always profit maximization. This profit can be increased either by increasing the sale price or by reducing cost. In Today’s competitive world it is difficult for a firm to manage price and any tendency to increase price may shift the customer to be in the league emphasis is on cost reduction, which requires having complete knowledge of the associated cost and their components.
In accounting, the term cost is defined as something of value, usually an amount of money, given up in exchange for something else, usually goods or services. Costs are the price paid for purchasing, processing, and delivery activities involved in turning raw material into finished products.
Classification of Cost
Classification on the basis of production cost:-
- Material Cost
- Labour Cost
- Overhead Cost
Classification of the basis of volume of activity
- Fixed Cost
- Variable Cost
Classification on the basis of ease of traceability
- Direct Cost
- Indirect Cost
The objective behind classification of cost is to determine the unit cost of the product (used in inventory valuation, pricing and profit determination.) and providing data needed for control of costs.
