Cost identification and classification
Chapter two
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BA 2 Cost identification and classification. Quantia Learning
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Understanding costs help us produce information regarding:
• manufacturing cost of a product/service
• charging a selling price for our products or services
• the products and services we should supply
• the cost to run a particular department or function, etc.
Cost terms
Historical cost
Historical cost, normally used when we consider the purchase of an asset, is the original cost
paid for the asset at the time of acquisition. This applies to both non-current assets, such as
buildings or vehicles, or current assets such as inventory.
By their nature, historical costs are out of date and might not reflect the current value of the
asset to the organisation.
The economic value of an asset is the value the organisation derives from owning and using
the asset, depending on the current circumstances this can be higher or lower than the historical
cost.
BA 2 Cost identification and classification. Quantia Learning
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