Question

Discuss the various classification of cost. 3. A company is considering investment in a project that costs Rs. 2,00,000. The estimated cash inflow from the project are as follows: Year Cash Inflow Present value factor at 10% 70,000 0.909 80.000 0.826 1,20,000 0.751 90,000 0.683 60.000 0.621 Calculate Net Present Value at P.V 10%

Answer 1

Question No. 4
Discuss the various classification of cost ?
Answer:-
Classification of Cost
Cost can be classified on various Basis, but the most common basis for classification of cost
are "Relation to Cost Object" and "Cost Behaviour"
Relation to Cost Object
Two Types are:-
1.) Direct Cost:- It is traceable to Particular Product in an economically feasible Manner.
	ex-Direct Material, Direct Labour etc.
2.) Indirect Cost:- It cannot be allocated to particular cost object. Ex-Indirect Material,
	Indirect Labour etc.
Cost Behaviour
Two types:-
1.) Fixed Costs:- These are costs which are independent of output. They remain constant
	throughout the relevant range. They are considered sunk in decision making.
2.) Variable Costs:- These are costs which vary with the output. They increase with relative to
	Labour and Capital.
Question No.5
Answer
AT Year 0, the amount to be invested is Rs. 200000
	Year	Cash Inflow	Present Value
			factor @ 10%	Present Value
				(inflow * factor)
	1	70000	0.909	INR 63,630.00
	2	80000	0.826	INR 66,080.00
	3	120000	0.751	INR 90,120.00
	4	90000	0.683	INR 61,470.00
	5	60000	0.621	INR 37,260.00
	Present Value of all Inflows(TOTAL)			INR 318,560.00
	Outflow for Investment			-INR 200,000.00
	Net Present Value			INR 118,560.00	ANSWER
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