A Keynote On The Cost Concept Of A Business organization

Every manufacturing type of business organization is concerned with converting the raw materials into the output product. In fact, the process requires labor force as well as other facilities to carry out and manage each small unit. Further, the amount spent on all these should be definitely ascertained. One must ensure that the following duties are done to calculate effective costing.

  • As a business manager, you need to collect and classify the different cost factors in terms of cost elements.
  • In addition, the above data should be allocated to the respective cost centers or units.
  • Selection of an appropriate costing method should be done that sticks to the general principles of accounting.
  • Above all, selecting the apt costing technique is also necessary.

Cost is a term that is actually involved with releasing something of value. Usually, it is realized in currency form and so, involves the payment of the corresponding amount for getting it. Or otherwise, it represents the cash outlay for productive factors.

As per costing is concerned, it is a process that is employed in determining the cost of doing something like manufacturing an item or rendering a service and so on. Also, there exists a different kind of group the cost items depending on the common characteristics these items possess. Here goes the list of such cost classifications.

In terms of Function

It is certain that a business firm has to perform a set of several functions like administration, research and development, manufacturing, selling and distribution and so on. Cost needs to be incurred based on all of these functions and also such expenses are grouped under the respective departments to measure the overall net income of the company.

  • As per the manufacturing cost is considered, all the costs needed to generate the products and to bring them to a sale condition is realized. This collectively includes the direct material cost, direct labor, and other indirect or overhead costs.
  • However, administration cost includes those cost incurred for policy formulation or directing and controlling the activities of the organization excluding R&D or so. In fact, this includes the salary given to office members and other staffs, office rent, postage, and stationery items cost.
  • Selling cost is inclusive of those required for creating products. As this review says that it is the cost that is required to generate demand among the customers. Distribution cost is that accounted for cartage, freight and so on.