Non-manufacturing costs
Administrative costs
Garrison & Noreen (2003) states that it includes all
executive, organisational and clerical costs associated with the general
management of an organisation rather than with the manufacturing, marketing or
selling activities of the company. It is another kind of overhead cost; they
are incurred by the administrative staff of the company and are not traceable
to any particular product, cost object or processing department.
Marketing and selling and distribution costs
These are the costs incurred to make sure that customers
receive their orders safely; that is they are the costs incurred by the company
during the promotion, advertising, sales and follow-up activities. They are
also called order getting and order-filling costs.
Research and development costs
These are the costs associated with the research and
development departments of the company. In that department, the aim is to
discover new products, devise new processes, improved means pf production. In
fact it is a matter of innovation. This is a very important department of the
company as it helps the company to differentiate its products and services form
those of competitors. So the costs of making such improvements should also be
taken into consideration when making certain decisions.
Quality cost
The image of a company is generally judged based on the
quality of its products and services. Companies would like to have defects-free
products in order to satisfy their customers and to reduce the after-service
and warranty costs. The need arises therefore to prevent, detect and reduce the
defects that may be found in the production. The costs associated with these
activities are known as quality costs; the quality costs can be divided into
four categories (Garrison and Noreen: 2003)
The first two categories are prevention and appraisal
costs which are incurred in an effort to avoid defective products from
being produced.
The last two categories are internal failure and
external failure costs which are incurred for the purpose of reducing
the effects of the production of defective items.
This description of costs from the functional point of view
has helped us in identifying various types of costs; but these costs can be
analysed from another point of view, namely their behaviour when related to
changes n the level of activity.
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