Page 57 - F2 - MA Integrated Workbook STUDENT 2018-19
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Cost classification
Analysing costs
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.
1.1 Why we need to understand costs
the cost to manufacture products
the selling price we should change 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.
A cost object is anything for which a cost can be ascertained. Examples
for cost objects: a product, service, centre, activity, customer or
distribution channel.
A cost unit is a unit of product or service in relation to which costs are
ascertained. The cost unit will depend on a number of factors, including
the amount of information available and the purpose for which the cost
unit will be used.
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