Page 30 - BA2 Integrated Workbook - Student 2017

Chapter 2

2.2 Classifying cost according to their nature

 Direct costs can be clearly identified with the cost object we are trying to cost.

The total of all direct costs is known as PRIME COST.

 Indirect costs cannot be directly attributed to a particular cost unit, although it is
clear that they have been incurred in the production of the product.

These indirect costs are often referred to as OVERHEADS.

2.3 Classifying cost according to their function

In manufacturing companies, which much of your studies will cover, the important
functional classification is:

 Production costs which would be incurred in the manufacture of the product.

 Non-production costs which, while not directly involved in the manufacture of
the product, are required to support the overall activity of the company. For
example selling and administration costs.

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