Advantages Of Cost Classification

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3.0 Cost Classification in Decision Making Cost classification is defined as the separation of expenses into different categories. (“What is cost classification? definition and meaning”, 2010) Classification of costs is vital in determining the most suitable method of accumulating and allocating cost data for management. It aims at assisting the management in evaluation of past activities and future planning by providing necessary costing information (“What are the advantages of cost classification?”, 2012). There are few advantages that cost classification would assist the management in decision making. Management would be benefited from cost classification by ascertain cost of goods manufactured and eventually sold (Qureshi, 2009). Costs…show more content…
Cost classification helps to analyze the whole activity under a situation and provide date to aid management in fixation of selling prices. The selling price per unit is calculated by adding a certain profit on the cost per units. Different techniques such as job costing, batch costing, output costing services costing are used for determine the selling price (“What are the advantages of cost classification?”, 2012). Besides, cost classification assist managers in cost reduction as well as cost control. Cost control is a technique that is used to minimize the cost of product and services without compromising on the quality (Cost control definition and usage, 2013). Proper control over its costs can have a profound positive impact on profits over the long term. Costing data is prepared to aid in the reduction or improvement of costs by using various techniques such as standard costing and budgetary control (“What are the advantages of cost classification?”,…show more content…
It provides relevant information to the management for planning, implements and controlling (Qureshi, 2009). For example, cost applied to producing a product is classified under manufacturing cost while cost incurred in policy-making activities under administrative cost. It provides reliable data and information which enable the comparison of cost between periods, volume of output and processes. Preparation of budgets shows the plans of the management for future periods and reflects the expected results of these plans (“What are the advantages of cost classification?”,
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