Costing and Taxation · Class 11 Commerce

Ch 2Classification of Cost (Cost Sheet) — Class 11 Costing and Taxation, concept-first.

Every cost a business incurs, when classified by the nature or element of the resource consumed, falls under one of three heads — Raw Material Cost, Labour Cost, and Other Expenses.

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Key concepts

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Element-wise Classification of Cost

Element-wise classification splits every cost into Raw Material Cost, Labour Cost, or Other Expenses, and then further into a Direct or Indirect version of that element.

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Classify each of the following cost items under the appropriate element-based head (Direct Material / Indirect Material / Direct Labour / In…Free

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Chapter contents

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2.i

Element-Based Classification of Cost

Every cost a business incurs, when classified by the nature or element of the resource consumed, falls under one of three heads — Raw Material Cost, Labour Cost, and Other Expenses.

2.ii

Function-Based Classification of Cost

Function-based classification groups cost according to the business function it relates to — not by what resource was consumed (as in the previous section), but by why the business incurred it.

2.iii

Behaviour-Based Classification of Cost

Behaviour-based classification looks at how a cost's total amount responds to a change in the level of output or activity — this is the classification that matters most for cost control, budgeting, an…

2.iv

Cost Sheet: Definition, Basic Components and Practical Problems

A Cost Sheet is a statement, prepared for a definite period (a month, a quarter, a year) or for a specific job/batch, that presents the various components of the total cost of a product in a logical,…