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Importance of Cost Classification
Analysis of cost behaviour is significant to all organizations for effective management. It is since many organizations have a unique cost structure. As an example like, fixed costs account for 60 percent - 80 percent of all hospital costs. Conversely, unlike many organizations of this variety, labour costs largely involve the hospital's fixed costs.
Labour costs not like depreciation need a cash outflow. It is characteristic of labour intensive organizations. On the other hand Capital-intensive organizations, contain low labour costs, as an example like: computerized manufacturing organizations. Some organizations as an example like: hospitals allocate 10 -15 percent of their space for standby emergency events providing them built in idle capacity. This prevents them from enjoying benefits of higher profits such a capital-intensive organization understands at higher volumes beyond the break-even volume. Hence the cost structure of healthcare institutions presents challenges to accountants since of their labour intensive and capital-intensive characteristics.
to determine product cost:
Absorption of Non Production Overheads in Production Cost Product costs may be compiled for a range of purposes including a) Stock valuation b) Product pricing c) Dec
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Service Cost Centres Since no production cost units pass via the service cost centers, it is essential to apportion the service department costs; to the production cost center
advantage of physical measure
What are the importance of cost classification
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