Cost Classification

Cost classification can be performed in many ways but however there are four important ways of classifying the different cost which includes the classification by nature , classification by tractability and classification by cost behavior.

Classification By Nature

There are basically four types of costs involve in a production process and these cost include the material cost , labor cost and overheads cost.

Classification by Tractability

The other important way is to classify the cost is its tractability to the product. The cost is classified into direct and indirect cost. The direct cost is directly related or traceable to production process or product whereas the indirect cost not directly related to production process of product.

Classification by Cost behavior

in this type classification the cost behavior to level of activity is bases for classification. The cost is basically classified into variable cost and fixed cost. The cost which react to level of activity know as direct cost and the cost which remain unaffected with level of activity know as fixed cost.