Elements and Classification of Cost

According to the type of expenditure

 Direct Costs
Direct Costs are directly allocated to a particular product

 Indirect Costs
Indirect Costs cannot be identified with a particular product
or service. Also known as overheads.

 Direct Costs Include

A.)Direct Material Cost
The cost of the materials which enter into and become part of
the food and beverage product. E.g. flour in bread. The cost of
materials also includes Freight, insurance, transport costs,
import duty etc.
B.) Direct Labour Cost
Wages paid to employees who are immediately concerned
with the production e.g.in case of food salary to chefs and
bakers.
C.) Direct Expenses
It includes all expenses directly identified with the product
e.g. cost of tools and equipments.
  Indirect Costs/ Overheads
A.)Production Overheads
Indirect expenses incurred in connection with production or
service operation e.g.
• Wages paid to repairman
• Salaries of production supervisors, service supervisors
• Rent and rates of production and service areas
• Power and fuel
• Depreciation
• Stationary
B.)Office and Administrative Expenses
• Rent Insurance and Lighting of office premises
• Stationary, postage related to office
• Depreciation of office equipments
• Audit fees
• Legal Charges
C.)Selling and Administration Expenses
• Advertising Expenses
• Bad Debts
• Legal charges for recovery of debts
• Subscription to trade journals

According to the behaviour of costs/ on the basis

Of Variability
1. Fixed Costs
2. Variable Costs
3. Semi Variable Costs
1. Fixed Costs
Have little direct relationship to the volume of business. Also
known as period Costs
• Salary
• Rent and Rates
• Repairs
• Maintenance
• Depreciation
• Employee remuneration and benefits
2.Variable Costsare directly related to the volume of business.
Also known as Product Costs.
• Food and Beverage Costs (Raw Material Costs)

3.Semi Variable Costs/ Semi fixed CostsVary with change in

volume of sales but not in direct proportion
• Telephone costs-Fixed periodical rental and the number
of calls made
• Heating-Permanently heated areas and room heated due
to increase in occupancy
 On the basis of Controllability
 Controllable costs are those that can be changed in short
term- Variable costs (Portion size, varying ingredients)
Cost of labour can be increased or decreased in the short
run by hiring employees or laying off employees or
increasing or decreasing wages.
 Non Controllable costs are those that cannot be changed
in the short term. These are usually fixed costs e.g. Rent,
Taxes etc.