Explain the nature of cost classification
Cost Classification, Methods and Technique
1. Cost Classification
[blur color=blue]Cost can be classified in accordance with the purpose for which the cost is needed. Some of the possible classification includes.[/blur]
- [blur]Behaviour of the cost in terms of whether it is fixed or variable.[/blur]
- The relevant or irrelevance of the cost to the decision on
- Direct or Indirect
2. Costing Method
[blur color=green]Is a method of cost as certainment that centres on the business. For a business that deals with a standardized product made under mass production methods or through a series of production steps called processes the appropriate costing method to use in process costing. On the other hand, where the product made or service rendered is no[/blur]
3. Cost Technique
[blur color=yellow]Costing technique refers to the method used to determine the value of finished goods. Among these techniques that give different valuation are:[/blur]
- Standard costing
- Marginal costing
- [blur]Absorption costing[/blur]
4. Fixed and Variable Costs
[blur color=purple]A fixed cost is a cost that remains the same regardless of changes in level of activity while a variable cost is a cost that increases in direct proportion to the increase in level of activity. For example, in producing a one-page handout for a group of students, the cost of the stencil used for typing the one page is an example of a fixed cost while the cost of duplicating paper used is a variable cost.[/blur]
Such goods are sole. The N400 is the contribution per unit rather than profit per unit. If 1000 units of the article are bought and sold during an accounting period.
Contribution= 1000 x N400=N400, 000.
[blur color=yellow]If the total fixed cost for the same period is N100, 000 then Profit=contribution-fixed cost[/blur]
N400, 000-N100, 000=N300,000
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