costs classified

• What are past/sunk costs?

  Costs accounted for in the past; an investment already incurred that can't be recovered

  -        No impact on current decisions

  -        Cannot be changed.

  -        Eg: Costs not related to future investments from the past, salary of employee who have been laid off, cost of machinery & equipment, marketing expense (any money spent on marketing is a cost you wont get back or recover)
• Future costs?

  Relevant to current decisions & need to be considered when accounting for costs as they relate to a future investment proposal

  • Eg. Costs related to maintain, secure, store a future investment
  • Relevant for managerial decisional making as required for expense control, decisions on new projects and pricing.
• Product costs?

  Directly relate to the products manufactured and are assigned to the related products.

  • They are the related direct materials, direct labour and factory overheads   Examples: factory worker’s wages, factory electricity, production materials.
• what are product costs?

  Directly related to products manufactured and assigned to related products.
• which costs are related to direct materials, direct labour and factory overheads?

  product