Write a memo to management detailing the various classification of costs and provide two reasons for which it is important to classify cost. The memo should contain 200 words

The Management

XYZ Company Ltd

Dear Sir/Ma'am,

Memo: Costs and the Importance of Classifying them

Below are the following classifications of cost:

Cost grouped by Nature

Product of Service cost-  This can be further categorised as: Material Cost Labour Cost: This is further classified into - Immediate Monetary Benefits, Future Monetary Benefits, Non-Financial Benefits,  Expenses

Cost grouped according to location or centre

Direct Costs Direct Material Costs Direct Labour  Direct expenses Indirect Costs Indirect materials Indirect Labour Indirect expenses

Cost classified according to time

Historical Costs Predetermined Costs Standard Costs Estimated Costs

Cost Classified by Decision Making

Marginal Cost Differential Cost Opportunity Cost Relevant Cost Sunk Cost Replacement Cost Normal Cost Abnormal Cost Avoidable Cost Unavoidable cost Pre-production cost Production cost Period cost Traceable cost Common Cost Controllable cost Uncontrollable cost Short-run Cost Long-run Cost Past Cost Future Cost Explicit Cost Implicit cost Book cost Shut down cost Abandonment Cost Urgent cost Postponable cost Conversion Cost

Cost Category according to Type of Production Process

Batch Cost Process Cost Operation Cost Operating cost Contract Cost Joint Cost

Categorising costs helps with:

effective cost controlfinancial planningdetermination of selling pricesBudgetary conrolapportionment of overheadsdecision making etc.

Sincere regards

Cheers!

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