Cost Accounting is the process and technique to ascertain cost. The process can be applied without difficulty only when one is acquainted who concepts like cost, classification of cost, elements of cost, components of total cost, cost centre and cost unit.

Besides, knowledge on preparation of cost sheet, various methods and types of costing to ascertain cost and profit of each product manufactured, are also essentials for cost accounting.

Meaning of cost

‘Cost’ in general means the amount of expenditure incurred on or attributable to a given thing. The expenditure may be actual or estimated, direct or indirect, but should be related to a job, product, process or service. For example, if a gold ring is manufactured by incurring an expenditure of Rs. 2,000 for gold, Rs. 150 as wage for the goldsmith and Rs. 50 towards the rent of equipment and shop used, then the ring costs Rs. 2,200. Similarly, if you have purchased a shirt for Rs. 525, it can be said that the cost of the shirt to you is Rs. 525. From this it is noted that the cost depends on the nature of product and the context in which it is used.


Characteristics of cost

The main character sties of cost are:

(a) It should be fully identified with the product.

(b) It does not mean the same thing under all circumstances.


(c) It may not be true, exact or accurate.

(d) Its composition differs under different situations.

(e) Different persons use different methods to ascertain cost.

(f) It varies with time, volume, method or purpose.


This implies that cost has no definite or fixed meaning. It may change according to the purpose of its ascertainment and interpretation. Generally, cost is the sum total of all expenses on (a) material, (h) labour and (c) overheads-factory, office, selling and distribution.