Management accounting report 5
times monetary and also verifiable while that prepared in a management accounting report is
mostly Monetary as well as company goal was driven.
Need for classifying costs by types, behavior, functions, and relevance.
It is important to classify costs regarding types, behavior, functions and relevance to
efficiently determine the cost of various products and profits realized by cost centers. The
initiative also helps in identifying the profitable products, areas as well as activity/capacity
levels. In the same way, planning and controlling become easy as the management comes up
with informed plans on how to carry out the operations of the firm. Therefore costs ought to be
classified regarding functions, types, behaviors and relevance.
Cost classification regarding type falls into various categories like variable cost, direct,
indirect, fixed cost, and operating(Kaplan and Atkinson,2015 p. 33).The classification is
important as it enables the management to understand the various types of costs that the firm is
incurring in a deeper way and therefore help in analyzing the costs.
Fixed costs refer to those costs whose value does not change despite the level of the
firm's operations. Such kind of costs remains the same throughout a particular period. Direct
costs include salary to permanent employees, factory rent among others. Fixed costs are even
incurred when the firm is at zero production. Variable costs are those type of costs whose
magnitude directly varies with the production level of the firm. Under variable costs, the higher
the production/operational level of a firm the higher the variable costs incurred. At zero level of
production, there are no variable costs incurred.it is important for the management to