Atrill and McLaney (2004) state that ‘Costs represent the resources that have to be sacrificed to achieve a business objective. The objective may be to make a particular product, to provide a particular service and so on’. (page 186)
In order to decide whether or not to undertake or continue a business activity it is necessary to know how much it costs. In addition, an understanding of what makes up the cost can show areas where the costs can be reduced.
Costs can be calculated in more than one way, because the cost of a service or product is made up of many different things.
Make a list of the things that make up the costs of running your service. Use fairly broad headings – if you have access to your management accounting headings then use them as a starting point.