2.23 Intermediate. 'Costs may be classified in a variety of

ways according to their nature and the information needs of

management.' Explain and discuss this statement, illustrating

with examples of the classifications required for different

purposes.

(22 marks)

ICSA Management Accounting

Depending on the nature and intent of cost analysis can be rendered in different ways. Costs are categorised into logical groupings of different types. Such classes have the capacity to identify any element of expense. Such cost classifications give meaning to cost details. The administration of a manufacturing company is of utmost importance. This is the first step in their efficiency and expense decision-making process.

Price is an extremely vague concept that has little value until it is defined as rational categories.

For example, if we know that total expenditures amount to $500 million versus $550 million. Any. None. Now if we add more detail, 350 million dollars is direct material costs and 100 million dollars are transparent labor and other overheads. The management can now concentrate on direct material costs because this represents the bulk of the overall cost in the cost control programs.