What is the classification of cost of capital?

The major classification of cost of capital are: Historical Cost and future Cost: Historical Cost represents the cost which has already been incurred for financing a project. It is calculated on the basis of the past data. Future cost refers to the expected cost of funds to be raised for financing a project.

What are the classification of cost in financial management?

The costs are classified into three major categories Materials, Labour, and Expenses. Under this methodology, the costs are classified into various divisions or functions of the enterprise. viz Production cost, Administration cost, Selling & Distribution cost and so on.

What is cost of capital in financial management?

Cost of capital is the minimum rate of return or profit a company must earn before generating value. It’s calculated by a business’s accounting department to determine financial risk and whether an investment is justified.

What is classification of capital structure?

Debt and Equity are the two primary types of capital sources for a business.

What are the 3 classifications of costs?

1] Classification by Nature

So basically there are three broad categories as per this classification, namely Labor Cost, Materials Cost and Expenses. These heads make it easier to classify the costs in a cost sheet.

What are the different types of cost classification?

Several types of cost classifications are noted below.
  • Fixed and Variable Costs. …
  • Departmental Costs. …
  • Distribution Channel Costs. …
  • Customer Costs. …
  • Discretionary Costs.

What are the 4 theories of capital structure?

Answer: There are four important capital structure theories: net income theory, net operating income theory, traditional theory, and Modigliani-Miller theory.

What are the importance of cost of capital?

In sum, the importance of cost of capital is that it is used to evaluate new project of company and allows the calculations to be easy so that it has minimum return that investor expect for providing investment to the company.

What is cost of capital explain its features?

The cost of capital means that rate of return, which a company has to earn on investments to maintain its value intact. In other words, the cost of capital is the minimum rate of return, which maintains the per-share market price (at the current level).

What are the 4 types of cost?

Costs are broadly classified into four types: fixed cost, variable cost, direct cost, and indirect cost.

What are the 4 types of cost accounting?

Types of cost accounting include standard costing, activity-based costing, lean accounting, and marginal costing.

What do you understand by classification of cost explain in detail?

Cost Classification is the process of segregating the company’s costs into different categories that gives a fair idea to the decision-maker about the spending pattern.

Why is cost classification important in management accounting?

Cost classification allows the manager to control processes and cut costs where needed, and perhaps send more resources to an area of the process that is lacking. It also allows him to review reports and advise accounting of needed adjustments in cost classification.

What are the 5 types of cost?

The 5 costs they cover are:
  • Direct cost.
  • Indirect cost.
  • Fixed cost.
  • Variable cost.
  • Sunk cost.

What are the two types of cost accounting?

A cost accounting system helps determine how much the production of a good or service will cost. There are two types of systems: job order costing and process costing.