Page 25 - BA2 Integrated Workbook STUDENT 2018
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Cost identification and classification
What is cost?
The word ‘cost’ can be used in two contexts. It can be used as a
noun, for example when we are referring to the cost of an item.
Alternatively, it can be used as a verb, for example we can say that
we are attempting to cost an activity, when we are undertaking the
tasks necessary to determine the costs of carrying out the activity.
The understanding of costs is fundamental to your management accounting
studies.
1.1 Why we need to understand costs
the cost to manufacture products
the selling price we should charge for our products
the products we should produce
the cost to run a particular department or function, and much more.
1.2 Cost terms
There are some important terms that you will need to understand when studying cost.
These terms will be used throughout your CIMA studies.
Historical cost
Historical cost is the original cost paid for an item at the time of
acquisition. It is normally used in the context of purchasing non-
current assets.
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