| In this classification costs are divided according to the function for which they have been incurred. E.g. production cost, office & administration cost, selling & distribution costs.
Production cost: materials, direct labour, stores overheads etc.
Office & administration cost: cost of formulating policy, directing the organisation and controlling the operations.
E.g Rent of Office, Depreciation of Office equipments, Salary to Office staff, Director Fees, Remuneration to CEO.
Selling and distribution expenses or marketing cost: expenditure incurred generating demand, on moving articles to prospective customers etc.
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