Cost measurement

In this lesson

1. 0:00 Cost measurement and cost objects
2. 2:34 Cost centres and responsibility centres
3. 4:46 Profit centres and investment centres
4. 6:15 Information needs by centre type
5. 8:01 Matching cost units to businesses
6. 13:23 Identifying cost behaviour patterns

About this lesson

We'll explore cost objects and cost units, understand how responsibility centres shape management information needs, and practise recognising cost behaviour patterns like variable, fixed, stepped, and semi-variable costs. By mastering these definitions, you'll be able to determine what costs to measure and why, which directly supports your Performance Management studies and helps you solve real exam scenarios with confidence. The first part of this lesson breaks down essential terminology. A cost object is anything you're calculating costs for—it could be a product, department, or service. A cost unit, a specific type of cost object, represents what your business sells to customers: a car for a manufacturer, an hour of staff time for a solicitor, or a meal for a restaurant. Understanding this distinction helps you identify the right level of detail for costing in exam questions. You'll also explore responsibility centres—departments classified by what managers are accountable for. Cost centres incur only costs; revenue centres focus on sales; profit centres manage both revenues and costs; and investment centres add responsibility for capital decisions. Each type requires different management information, which is why identifying the centre type matters for your role as a management accountant. The final section walks you through cost behaviour classification using a practical worked example. You'll learn to spot variable costs, which increase uniformly with output; fixed costs, which remain constant; stepped costs, which jump at certain activity levels; and semi-variable costs, which contain both fixed and variable elements. By comparing total costs and cost per unit across different production volumes, you can determine which category each cost falls into—a technique you'll use repeatedly in your studies and in practice.

Duration: 19m