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• Concept of Cost


  • It is the amount expenditure incurred or attributable to a given thing
  • It is the measurement, in monetary terms, of the amount of resources used for the purpose of production of goods or rendering services
  • It means economic sacrifice, measured in terms of standard monetary unit, incurred or potentially to be incurred, as a consequence of a business decision to achieve a specific objective
• Expense


  • It is an expired cost resulting from a productive usage of an asset
  • It is that portion of the revenue earning potential of an asset which has been consumed in the generation of revenue
  • Unexpired portion is recorded as an asset
  • Unexpired cost is converted into expense
• Loss


  • It can be defined as the reduction in the firm's equity (other than withdrawal) for which no compensation value has been received
  • It ia an expired cost resulting from the decline in the service potential of an asset that generated no benefit to the firm
• Cost objects


  • Any activity for which a separate measurement of cost is required
  • Cost of making a product
  • Cost of providing a service
• Cost driver


  • Any activity or occurrence that has a direct cause-effect-relationship with a cost
  • Production volume
• Cost Center


  • Cost Center-A section of business such as location, person, or item (group) of equipment for which costs may be ascertained and used for the purpose of control
  • Personal-Consists of a person or group of persons
  • Impersonal-Consists of a location or an item of equipment or group of these
  • Production-Where actual production work takes place
  • Service-Which render services to production
• Cost


  • Unit
  • Unit of measurement of cost:
  • Unit of production
  • Unit of services
  • It is a unit of product, service or time in relation to which cost may be ascertained or expressed
• Profit center


  • Responsibility center in which inputs are measured in terms of expenses and outputs are measured in terms of revenues
  • It is a sub-division of an organization in which financial performance is measured on the basis of profit
  • Segment of an organization for which both cost as well as profit are traced in monetary terms
• Opportunity cost


  Potential benefit given up when an alternative is selected
• Sunk cost


  Cost incurred in the past that cannot be changed