Meaning and Definition of Cost, Costing

The term cost refers to the monetary value of resources sacrificed to produce goods or services. It includes all expenses incurred in acquiring, producing, or maintaining an asset. Cost is a fundamental concept in business and accounting, as it influences pricing, profitability, and financial decision-making.

Costs can be classified based on different factors, such as:

• Fixed Cost: Costs that remain constant regardless of production levels (e.g., rent, salaries).

• Variable Cost: Costs that change with production levels (e.g., raw materials, labor).

• Direct Cost: Costs directly attributable to a specific product or service (e.g., raw materials).

• Indirect Cost: Costs that are not directly linked to a product but support overall operations (e.g., factory rent).

• Opportunity Cost: The potential benefit lost when choosing one alternative over another.

Definitions of Cost:

1. ICMA (Institute of Cost and Management Accountants, UK):
   “The amount of expenditure (actual or notional) incurred on a given thing.”

2. Walter B. Meigs:
   “Cost is the value of economic resources used as a result of producing or doing the thing being measured.”

3. Horngren & Foster:
   “A cost is a sacrificed resource to achieve a specific objective.”

Costing

Costing is the technique and process of determining the cost of a product, service, or activity. It involves collecting, classifying, analyzing, and allocating costs systematically to ascertain the total cost and cost per unit. Businesses use costing to control expenses, improve efficiency, and set competitive prices.

Costing helps in:

• Determining selling prices

• Controlling and reducing costs

• Measuring profitability

• Budgeting and forecasting

Definitions of Costing:

1. ICMA (UK):
   “Costing is the technique and process of ascertaining costs.”

2. Wheldon:
   “Costing is the classifying, recording, and appropriate allocation of expenditure for the determination of the costs of products or services.”

3. CIMA (Chartered Institute of Management Accountants):
   “Costing is the process of identifying, measuring, analyzing, and reporting cost information to management for decision-making.”