Concepts Of Cost Concept

1454 Words3 Pages

1.1.2 Cost Concepts

Cost is the amount of resources spent given up in exchange for something and is expressed in monetary terms. In general ‘cost’ means “the amount of expenditure incurred or attributable to a given thing”. The expenditure incurred may be actual or notional.
Cost is defined differently by economists, cost accountants and others. Some of the definitions of cost are given below:
• Cost is “The amount of expenditure (actual or notional) incurred or attributable to a given thing” - CIMA, UK
• “Cost is a measurement, in monetary terms of the amount of resources used for the purpose of production of goods or rendering services” - Cost Accounting Standards of ICWA of India
• “A cost is the value of economic resources used as a result …show more content…

In this type of cost centre, cost is analysed and related to series of operation in a sequence. For example, In chemical industries: Steel rolling, Refineries, etc.,
• Operation cost centre: The machines or persons which carry out similar operations are represented by operation cost centre. This will ascertain the cost of each operation inside the factory irrespective of its location.

Cost Unit:
A cost unit can be defined as a unit of measurement to ascertain the cost of products and services. Cost units are selected to express cost per unit. They are measured based on the nature of products and business. There are generally two types of cost units, which are explained as follows:
1. Unit of production: It is mainly applied in manufacturing industries. For example, a tonne of aluminium or a gram of silver, etc.
2. Unit of service: It is applied in service industries. For example, per table, per day, etc.
Some of the examples of how cost unit is used for different products and services are listed below. We measure them as:
Bricks Per 1000 bricks made
Collieries Per ton of coal raised
Printing Per 1000 impressions
Ship-building Per

Open Document