Division of costs to various categories

Last updated: 26.03.2016

Costs can be divided into different categories according to their drivers or behavior. In general, cost classification helps understand the costs by studying their behavior and drivers with the aim of their reduction or optimization. And as in other life situations, it is much easier to influence things by knowing them.

If you know details about your costs, it is then much easier to:

  • plan the costs and keep costs under control
  • start cost optimization or reduction program - cost classification is a kind of starting point if you intend to optimize or cut costs
  • make decisions, for example  about production capacity or whether or not shut-down poorly performing factory

 

Cost division for sure brings its benefits. But remember that the effort of analysing them costs money (even though only internal) which shall not be higher than the benefits.

 

SO IN WHICH WAYS YOU CAN ANALYSE YOUR COSTS, I.E. CLASSIFY THEM?

1. According to traceability to cost object (most often product or service):

 

2. According to function:

  • production (manufacturing) costs
  • non-production costs

 

3. According to relationship with the level of production:

 

4. According to measurement basis:

  • historical cost
  • standard cost
  • estimated cost

 

5. According to cost source:

 

6. According to controllability:

 

7. According to irreversibility:

 

8. According to actual existence:



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