CAT / FIA FMA Syllabus A. The Nature, Source And Purpose Of Management Informa - Production costs and Non-Production costs - Notes ^{1 / 9}

Cost accounting is used for:

1. Preparing statements (e.g. budgets, costing)

2. Cost data collection

3. Applying costs to inventory, products and services

For the preparation of financial statements, costs are often classified as:

1. production

2. non-production costs

Production costs

are costs identified with goods produced for resale.  

Production costs are all the costs involved in the manufacture of goods (costs incurred inside the factory), i.e.:

• direct material

• direct labour

• direct expenses

• variable production overheads

• fixed production overheads

Non-production costs

are not directly associated with production of manufactured goods (costs incurred outside the factory). 

They are taken directly to the income statement as expenses in the period in which they are incurred.

Such costs consist of:

• administrative costs

• selling and distribution expenses

• finance costs