What are the Advantages of Cost Classification?

Cost Classification:
(1) Direct cost can be directly identified with the finished products.
(2) Indirect cost cannot be directly identified with the final product.

(1) Activity cost pool: accumulating the cost for the entire activity.
(2) Driver: is that factor which influences the particular activity cost.
Steps:
(1) Activity pool cost
(2) Cost driver
(3) Driver rate
(4) Apply to the product
Advantages:
(1) Helps to price your product correctly.
(2) Helps to analyse the whole activity under a situation.
(3) It has to come from the shopfloor level and cannot be implemented by only sitting in
the Board Room.
(4) Unwarranted activity can be done away with.
(5) Cost reduction and cost control.