Cost classification is the categorisation of various expense items for the specific purpose of decision making by management.
In RealFood company, production of chocolate would require procurement of raw material, transport of the material, purchase and installation of manufacturing equipment and payment of labor costs. This would need to be understood by management in terms of product costs, period costs, fixed and variable costs, manufacturing overheads among others. Fixed costs are determined by the top management, hence have more control over acquisition of new equipment or not. RealFoods will be able to control and reduce the cost of producing chocolate. Cost classification also helps management to make decisions that keep departments operations within the budget hence maximizing its profits. RealFoods management can be able to develop cost control programs with the aim of reducing or minimally maintaining expenses.
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With such increase in orders, knowing the right costing technique will help the company will be able to compute the actual cost per order per bar. This information will assist in determining the price per chocolate bar. Understanding this cost price dynamics can help understand if they are operating profitably or incurring losses. The Melbourne University accounting graduate should be able to guide the company appropriately on the most appropriate costing technique.