Page 67 - F2 - MA Integrated Workbook STUDENT 2018-19

Cost classification

2.3 Classifying cost according to their function

In manufacturing companies 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, administration, distribution and finance costs.

Production costs are included in the valuation of inventory whereas non-production
costs are not included.

Test your understanding 6

BCD is a car manufacturer.

Identify the correct classification for each of the costs below by writing one of
the following in the box provided (each cost is intended to belong to only one
classification)

1 Direct materials
2 Direct labour
3 Production overhead
4 Administration costs
5 Selling and distribution costs

Classification

Cost of advertising the car on television

Wages of the workers moving raw materials from stores

Cost of metal used for the bodywork of the car

Cost of materials used to clean production equipment

Assembly worker’s wages

Wages of office workers

Wages of storekeepers in material store

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