Question
Why is there a need for classification of costs?

Answer

The purpose and objective of every business is to earn profit. For this, a business needs to price its goods and services appropriately after treating different costs in an appropriate manner. What a business has spent on machinery cannot be recovered from the production in one month.
On the other hand, raw material used in a product must be recovered from that product only. Thus, the costs should be classified clearly, so that their recovery is possible.

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