Q.Classify each of the following cost items under the appropriate function-based head (Factory Cost / Administration Cost / Selling Cost / Distribution Cost / Research & Development Cost):

Each item is classified by the business function it serves — production, general administration, winning orders, delivering goods already sold, or developing a not-yet-launched product.

(a) Running the factory itself → Factory Cost. (b) Relates to a product not yet launched → R&D Cost. (c) Creates demand/wins orders → Selling Cost. (d) Delivers goods already sold → Distribution Cost. (e) General office running cost → Administration Cost. (f) Storing finished goods before dispatch is part of the distribution function → Distribution Cost.

Function-based classification asks: which business activity does this cost belong to?

1. Salary of the works manager: the works manager's job is running the production department itself → Factory Cost.
2. Market survey before launching a new product design: this relates to a product that does not yet exist in a final, sellable form — it is about developing/designing the product, not selling an existing one → Research & Development Cost.
3. Advertisement expenses: incurred specifically to create demand and win orders for the product → Selling Cost.
4. Carriage on delivering finished goods by the firm's own van: this is the cost of physically getting already-produced (and already sold/ordered) goods to the customer → Distribution Cost.
5. Office stationery and postage: general running expenses of the office, unconnected with production, selling, or distribution specifically → Administration Cost.
6. Warehouse rent for finished goods awaiting dispatch: storing goods that have already been produced, while they wait to be sent out to customers, is part of the distribution function — distinct from Selling Cost, which is about winning the order in the first place, not warehousing/shipping it afterward → Distribution Cost.
   ✓Final answer

   (a) Factory Cost; (b) Research & Development Cost; (c) Selling Cost; (d) Distribution Cost; (e) Administration Cost; (f) Distribution Cost.

The most common confusion in function-based classification is between Selling Cost and Distribution Cost. Selling Cost is about creating demand and WINNING the order (advertisement, sales commission); Distribution Cost is about what happens AFTER the goods are ready to go — warehousing finished goods, packing, and carriage outward. Warehouse rent for finished goods is frequently, and wrongly, classified as Selling Cost when it is actually Distribution Cost.