UNDER THE SUPERVISION OF:

SIR ASLAM WATTOO MIHAJ UNIVERSITY LAHORE

CLASSIFICATION OF COST ACCORDING TO FUNCTION:

Costs can be classified based on functions or activities in an organization. All the costs of a business can be classified into following classifications. Product ion costs. Administration costs. Finance costs. Selling costs. Distribution costs. Research and development costs.

PRODUCTION COST:

All the costs relating to production of goods or services, whether direct or indirect.

Example of Direct Production Costs (also known as direct manufacturing costs) Direct Raw Material Direct Labor Other Direct Expenses such job work charges relating to particular product, etc.  

Examples of Indirect Production Costs.

(also known as Production or Manufacturing Overheads). Salaries of Supervisors, Production Heads, Technical and Planning

Staff etc. Quality control costs. Other laborer related expenses. Store expenses etc.

ADMINISTRATION COSTS:

These costs are incurred in connection to the general management of the business.

Salaries of staff in general management Office related expenses such as rent, rates, taxes,

telephone, stationery etc. Charges levied by bank Audit and legal fees Office related depreciation etc.

SELLING COSTS:

Selling costs includes all kinds of expenses incurred for achieving sales of the products and services. These are also considered indirect expenses known as selling overheads.

DISTRIBUTION COSTS:

Distribution costs includes all kinds of expenses are incurred for distributing the products from its point of production to its customers.

Examples of distribution costs are as follows: Transportation costs Warehouse rents Commission to Distribution channel etc.

RESEARCH AND DEVELOPMENT COSTS:

Costs under these heads are the costs comprising of development costs of new products, improvement related expenses etc.