Types of Costs

Types of Costs

Costs can be classified by using three fundamental way i.e. classification by nature, classification by tractability and classification by cost behavior.

1.     Classification By Cost

Under this cost classification, we can divide costs into three categories martial cost, labour cost, and overhands costs. This classification is widely used in the production environment. Production overhead is all costs other than labour & material.

2.    Classification By Cost

Under this classification costs can be categorized into direct cost and indirect cost. Those costs which can be traced directly to a product are regarded as direct cost, and other cost which cannot be directly traced to a product is known as indirect cost.

3.    Classification By Behavior

In this classification costs can be categories into variable cost and fixed cost. Those cost which changes with the level of activity is regarded as variable cost, while other cost which does not change with level activity are fixed costs.