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Cost classification

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, administration, distribution and finance costs.

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

Illustrations and further practice

Now try TYU question 3 from Chapter 4

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