Get to Know the Factors Affecting Direct/Indirect Cost Classifications
As a student who is studying Accounts, you will often have to learn about costs and its different classification. Classification of costs into direct and indirect cost is one way of classifying costs. It is important that you know about such classification and what direct and indirect costs actually mean.
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What is cost classification?
Classification of cost is the process that involves grouping of costs as per their common characteristics. It means placing like items together as per the common characteristics. A proper cost classification is extremely important for identifying cost with cost units and cost centers.
Cost can be classified according to their nature, degree of traceability and several other characteristics. Cost figures are classified depending on the purpose that has to be achieved and the concerned requirements.
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Classification of costs
Through our factors affecting direct/indirect cost classifications homework help, you will not only get to know about its classification as to whether it is the direct type or indirect type of cost, but also other classifications, which include:
- Analytical classification, or classification by nature of elements:
Costs are divided into three categories according to analytical classification: Materials, Labor, and Expenses.
- Functional Classification:
Costs are classified into commercial cost and manufacturing and production cost according to this classification.
- Classification by degree of traceability of product:
It is according to the degree of classification that the total cost is divided into direct and indirect cost. There are various factors which affect this kind of classification.
- Classification by changes in volume or activity:
Cost is categorized into fixed, variable and semi-variable as per this classification. With this classification, costs are categorized as per their behavior according to the changes in volume of production or level of activity.
- Classification by controllability:
Costs can be controllable and uncontrollable.
- Classification by time:
Cost can be classified by time as historical and predetermined costs.
Apart from these, there are other classifications that you will know about when you get factors affecting direct/indirect cost classifications assignment help from our experts.
Factors Affecting Classification by Degree of Traceability
Costs are classified as direct or indirect according to their relationship to the cost object. There are several factors which affect such sort of classification. These include:
- The information gathering technology that is available
- Design of operations
- Contractual arrangements.
These are the primary factors which lead to a cost being classified as direct or indirect. Direct costs are those which are identified with or even incurred for a cost unit, whereas indirect costs cannot be identified conveniently with a specific cost unit. This classification is extremely important in cost accounting.
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