MEANING OF COST
‘COST’ represents a sacrifice of values, a foregoing or a releaseof something of value. It is the price of economic resources used as aresult of producing or doing the thing costed. It is the amount of expenditure incurred on a given thing. Cost has been defined as theamount measured in money or cash expended or other party transferred, capital stock issued, services performed or a liability incurred in consideration of goods and serviced received or to bereceived. By cost, we mean the actual cost i.e. historical cost. ICWA (UK) defines cost as the amount of expenditure (actual or notional)incurred on, or attributable to a specified thing or activity.
CLASSIFICATION OF COST
Cost classification is the process of grouping costs according totheir common features. Costs are to be classified in such a mannerthat they are identified with cost center or cost unit.
ON THE BASIS OF BEHAVIOUR OF COST
Behavior means change in cost due to change in output. On the basis of behavior cost is classified into the following categories:
It is that portion of the total cost which remains constantirrespective of the output upto capacity limit. It is called as a periodcost as it is concerned with period. It depends upon the passage of time. It is also referred to as non-variable cost or stand by cost,capacity cost or “period” cost. It tends to be unaffected by variationsin output. These costs provide conditions for production rather thancosts of production. They are created by contractual obligations andmanagerial decisions. Rent of premises, taxes and insurance, staff salaries constitute fixed cost.