Classification of Costs

Classification of Costs

Factory: where production takes place and the product is finished and made ready to sell

Warehouse: where finished goods are stored and from where they are despatched when sold

Office: where the support functions take place - marketing, sales, admin, finance

Classification of Costs by Element

Direct costs: a cost that can be identified directly with each unit of output

Indirect costs: all costs apart from 'direct costs'; not identified with specific units of output

Materials: direct (cost of raw materials), indirect (cost of other materials)

Labour: direct (wages of machinery workers or assembly line workers), indirect (wages to other employees)

Expenses: direct (have particular units of output e.g. fees of producing output)), indirect (other expenses e.g. rent)