Page 5 - Cost Accounting - Ready Reckoner

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Classification of Cost

Indirect
Direct Cost
Cost

Direct Direct Direct Indirect Indirect Indirect
Material Labour Expenses Material Labour Expenses

Prime Cost Overheads

Selling &
Factory Office & Distribution
Overheads Admin O.H O.H

On the basis of relation to Cost Centre:

 Costs are classified into Direct and Indirect Cost.
 Direct cost is expenses directly incurred for producing a product or rendering a

service.
 The sums of direct costs are called Prime Cost.

 Indirect Costs are expenses for supportive activities required for producing a

product or rendering a service. The sum of indirect costs is called overheads.

On the basis of function:

Overheads are classified into Factory Overheads, Administration Overheads,
Selling and Distribution Overheads on the basis of functional activity for which cost is

incurred.