Cost classification

Cost classification is a process of separation of expenses into different categories (and sometimes also accounts). Typical cost classifications are based on:

  • number of occurrences - fixed and variable costs,
  • relation to product - direct and indirect costs,
  • relation to future - opportunity and sunk costs,
  • source - production, services, human resources costs,
  • eligibility - qualified and unqualified costs.

There are multiple cost classifications. They help managers in cost analysis and finding opportunities to increase efficiency of the company. See some default categories in cost classification:

  • advertising,
  • transport expenses,
  • contractors,
  • education and training,
  • employee benefits,
  • office expenses,
  • personal and wages,
  • professional services,
  • bank fees, insurance, interest, dividends and other financial expenses,
  • reference materials,
  • repairs and maintenance,
  • taxes,
  • rent or lease,
  • supplies,
  • travel,
  • utilities.

References

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