Cost classification by element entails:

Cost classification by element entails:

• A. States cost according to function performed
• B. States cost according to what it is; material, labour or expense
• C. States cost according to period incurred
• D. States cost according to department

Answer: (B)

Cost classification by element groups costs according to what they are: material, labour, and expenses. This breakdown shows the actual components that go into the total cost, making it easier to measure, control, and analyse each part separately. Material cost covers raw materials and components used in production. Direct labour cost is the wages of workers who directly convert materials into finished goods. Expenses (often called overheads) cover indirect costs that support production, such as utilities, depreciation, and indirect labour. Classifying by function would separate costs by activity (for example, production, administration, selling), not by what the cost consists of. Classifying by period looks at timing rather than composition. Classifying by department groups costs by where they occur (cost centres), not what the costs are made of.

Cost classification by element groups costs according to what they are: material, labour, and expenses. This breakdown shows the actual components that go into the total cost, making it easier to measure, control, and analyse each part separately. Material cost covers raw materials and components used in production. Direct labour cost is the wages of workers who directly convert materials into finished goods. Expenses (often called overheads) cover indirect costs that support production, such as utilities, depreciation, and indirect labour.

Classifying by function would separate costs by activity (for example, production, administration, selling), not by what the cost consists of. Classifying by period looks at timing rather than composition. Classifying by department groups costs by where they occur (cost centres), not what the costs are made of.