Basic Cost Concepts

Gourav Vallabh
XLRI
Jamshedpur
Cost Assignment
Cost is the cash or cash equivalent
value sacrificed for goods and services
that are expected to bring a current or
future benefit to organization.

Expired costs are called expenses.

A loss is a cost that expires without
producing any revenue benefit.
Cost Centre / Cost Objects
A cost object or cost centre is any item
such as products, customers,
departments, projects, activities and so
on for which costs are measured and
assigned.

Assigning cost accurately to cost object
is crucial. Distorted cost assignment
can produce erroneous decisions and
poor evaluations
Cost Objects
Costs are directly or indirectly
associated with cost objects. Indirect
costs are costs that cannot be traced
easily and accurately to a cost object
whereas direct cost are those costs that
can be traced easily and accurately.
Here, easily means in a economically
feasible way and accurately means that
the costs are assigned using a causal
relationship.
Cost Unit

Cost Unit : A cost unit is a unit of
product or unit of service to which costs
are ascertained by means of allocation,
apportionment and absorption.