Cost concept used in cost accounting

Cost concept used in cost accounting is the amount of resources given up in exchange for some goods or services. The resources given up are expressed in monetary terms. Cost is defined as “ the amount of expenditure incurred on or attributable to a given thing or to ascertain the cost of a given thing”. Thus cost is that which is given or is sacrificed to obtain something. The cost of an article consists of actual outgoings or ascertained charges incurred in its production and sale. Cost is generic term and it is always advisable to qualify the word cost to show exactly what is means e.g. prime cost, factory cost sunk cost etc. cost is also different from value as cost is measured in terms of money whereas value is measured in terms of usefulness or utility of an articles. The objective for which the cost are computed is also important. For example, if the purpose is to fix selling price, then total cost is considered. For valuation of stock, cost means cost of production only. If the objective is to measure efficiency, cost will have to be compiled differently than if the purpose is to quote or value the stock. So the term cost has different interpretations. A cost must always be studied with reference to its purpose and conditions. Different costsmay be ascertained for different purposes and under different conditions. For the valuation of work in progress, factory cost used but for valuation of finished goods, cost of production is used. If the purpose to the study of cost is the same, different conditions may lead in variation in cost. The cost per unit of a product changes with increase or decrease in volume of output as the amount of fixed expenses to be borne by each unit of output decreases or increases with increase with increase or decease in units of production.

segment of activity or area or responsibility for which costs are accumulated. Typically cost centers are departments but in some instances, a departments may contain several cost centres. These cost centres are the departments or sub departments of an organization with reference to which cost is collected for cost ascertainment and cost control.