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Functional Classification of Costs
Beneath this classification, costs are classified according to the function they execute in an organization. Costs can functionally be classified like:
a) Production Costs: Are all the costs incurred in production of units throughout a time period as like an example of raw material costs, and production overheads and direct labour costs.
b) Administration Costs: These are all costs incurred in making sure the smooth running of the organization so like to facilitate the production and sale of services and goods. These involve: salaries for the managers, salaries for support staff like accountants, and secretaries and clerks
c) Distribution and Selling Costs: These are costs such are incurred to enable the delivery of products and services to the real markets and complete or promote a sale. These costs include: saleswoman salaries, salesmen commission, advertising costs, depreciation on motor vehicles utilized through salesmen, the cost of fuel utilized through vehicles utilized for distribution reasons etc.
d) Other functional classifications
Cash Budget - Budgetary Planning and Control This can records the cash outflows and inflows that are expected to take place in respect of every functional budget. This may be
Variable costs are the cost that are directly proportionate with the quantity of manufacture and or directly associated with the service.
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