lOMoARcPSD|25448604
Demerits
• It is Unnecessary: It is argued that maintenance of cost records is not necessary and
invloves duplication of Work and a good number of concerns are working without any
system of costing.
• It is Expensive: Installation of a costing system is quite expensive which only large
concerns can afford.
• It is Inapplicable: Costing sytem will be inapplicable if its not customised according to
the nature and requirement of the organisation.
• It is a failiure: The failiure of costing system in some concerns is quoted as an argument
against the introduction in other undertkaings.
Basic Cost Concepts
Cost: The amount of expenditure (actual or notional) incured or attributable to a given thing.
Cost Vs. Expense and Loss:Often the terms ‘cost’ and ‘expenses’ are used interchangably.
But cost should be differentiated from expenses and losses.
Expense is defined as “an expired cost resulting from a productive usage of an asset”. It is that
cost which has been applied against revenue of a particular accounting period in accordance
with the principle of matching costs to revenue. In other words, an expense is that portion of
the revenue earning pottential of the cost of an asset which has been consumed in the generation
of revenue. Unexpired cost of an asset is recored as an asset in the balance sheet. Ex.
Depreciation -Expired cost, Prepaid insurance – Unexpired cost.
Loss is defined as “reduction in firms equity, other than from withdrawal of capital for which
no compensating value has been received”. A loss is an expired cost resulting from the decline
in the service potential of an asset that generated no benefit to the firm.
Cost Centre, Cost Unit and Cost Object
Cost is ascertained by cost centre, cost unit or cost object
Cost Centre
ACCORDING TO CIMA (UK) as “ a location , person , or item of equipment (or group of
these ) for which cost may be ascertained and used for the purpose of control .”
Cost Accounting
Jerlin Jose, Asst. Professor, CHRIST (Deemed to be University)
Bengaluru
Downloaded by Nikee Patel ()
, lOMoARcPSD|25448604
It refers to section of business to which cost can be charged and the main purpose is cost
control .
• Location ( a department, sales area ).
• An item of equipment ( a machinery, delivery van )
• A person ( a salesman, machine operator )
• A group of these (two automatic machines opertated by one workman)
Cost center refers to a convenient segment into which organization is appropriately divided
for product costing .For the purpose of cost accumulation each of theses activities may be
treated as cost centre .
Types of Cost Center
• Personal cost Centre – which consist of person or group of person .
• Impersonal cost Centre – which consist of location or an item of equipment .
From functional point of view
• Production cost Centre - Cost centre where actual production work takes place. Ex.
work machine department, welding dept, finishing shop etc.
• Service cost Centre- Which are ancillary to and render services to production cost centre
Ex. repair shop , canteen , power house, tool room, stores etc.
Cost Unit
Cost unit helps the cost accountant to breaks up the cost of a cost centre into smaller sub-
divisions.
A cost unit is defined by CIMA as a “ unit of product , service or time in relation to which cost
may be ascertained or expressed .”
Cost unit are usually the unit of physical measurement like number , weight , area , volume ,
length , time ..etc.
Cost Unit is Unit of Measurement of Cost. Ex. Unit cost of Sugar mill – Cost per tonne of
sugar. Unit cost of Textile mill - Cost per metre of cloth.
Cost Accounting
Jerlin Jose, Asst. Professor, CHRIST (Deemed to be University)
Bengaluru
Downloaded by Nikee Patel ()
Demerits
• It is Unnecessary: It is argued that maintenance of cost records is not necessary and
invloves duplication of Work and a good number of concerns are working without any
system of costing.
• It is Expensive: Installation of a costing system is quite expensive which only large
concerns can afford.
• It is Inapplicable: Costing sytem will be inapplicable if its not customised according to
the nature and requirement of the organisation.
• It is a failiure: The failiure of costing system in some concerns is quoted as an argument
against the introduction in other undertkaings.
Basic Cost Concepts
Cost: The amount of expenditure (actual or notional) incured or attributable to a given thing.
Cost Vs. Expense and Loss:Often the terms ‘cost’ and ‘expenses’ are used interchangably.
But cost should be differentiated from expenses and losses.
Expense is defined as “an expired cost resulting from a productive usage of an asset”. It is that
cost which has been applied against revenue of a particular accounting period in accordance
with the principle of matching costs to revenue. In other words, an expense is that portion of
the revenue earning pottential of the cost of an asset which has been consumed in the generation
of revenue. Unexpired cost of an asset is recored as an asset in the balance sheet. Ex.
Depreciation -Expired cost, Prepaid insurance – Unexpired cost.
Loss is defined as “reduction in firms equity, other than from withdrawal of capital for which
no compensating value has been received”. A loss is an expired cost resulting from the decline
in the service potential of an asset that generated no benefit to the firm.
Cost Centre, Cost Unit and Cost Object
Cost is ascertained by cost centre, cost unit or cost object
Cost Centre
ACCORDING TO CIMA (UK) as “ a location , person , or item of equipment (or group of
these ) for which cost may be ascertained and used for the purpose of control .”
Cost Accounting
Jerlin Jose, Asst. Professor, CHRIST (Deemed to be University)
Bengaluru
Downloaded by Nikee Patel ()
, lOMoARcPSD|25448604
It refers to section of business to which cost can be charged and the main purpose is cost
control .
• Location ( a department, sales area ).
• An item of equipment ( a machinery, delivery van )
• A person ( a salesman, machine operator )
• A group of these (two automatic machines opertated by one workman)
Cost center refers to a convenient segment into which organization is appropriately divided
for product costing .For the purpose of cost accumulation each of theses activities may be
treated as cost centre .
Types of Cost Center
• Personal cost Centre – which consist of person or group of person .
• Impersonal cost Centre – which consist of location or an item of equipment .
From functional point of view
• Production cost Centre - Cost centre where actual production work takes place. Ex.
work machine department, welding dept, finishing shop etc.
• Service cost Centre- Which are ancillary to and render services to production cost centre
Ex. repair shop , canteen , power house, tool room, stores etc.
Cost Unit
Cost unit helps the cost accountant to breaks up the cost of a cost centre into smaller sub-
divisions.
A cost unit is defined by CIMA as a “ unit of product , service or time in relation to which cost
may be ascertained or expressed .”
Cost unit are usually the unit of physical measurement like number , weight , area , volume ,
length , time ..etc.
Cost Unit is Unit of Measurement of Cost. Ex. Unit cost of Sugar mill – Cost per tonne of
sugar. Unit cost of Textile mill - Cost per metre of cloth.
Cost Accounting
Jerlin Jose, Asst. Professor, CHRIST (Deemed to be University)
Bengaluru
Downloaded by Nikee Patel ()
