Introduction to Classification according to time
Costs can also be classified according to time. This classification is described as follow:
I. Historical Costs:-
These are the costs that are acquired in the past that is in the past year, past month or even in the last week or yesterday. The historical costs are determined after the period is over. Other words it becomes a post-mortem analysis of what has take place in the past. Even though historical costs have limited significance, still they can be employed for estimating the trends of the future that is they can be effectively employed for predicting the future costs.
II. Predetermined Cost:-
These costs are related to the product are calculated in advance of production, on the base of a specification of all the issues influencing cost and cost data. Pre determined costs might be either estimated or standard. Standard Cost is a determined calculation of how much cost should be within particular working conditions. It is based on technical studies concerning material, labour and expenses. The major purpose of standard cost is to comprise some type of benchmark intended for comparing the actual performance along with the standards. Alternatively, estimated costs are determined costs based on past performance and adjusted to the anticipated changes. It can be employed in any business circumstances or decision making that does not need accurate cost.
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