A cost unit is an entity, such as a product, service or department, that bears costs directly attributable to it. It can also be used to allocate indirect costs to specific activities or purposes within an organisation. Cost units help in understanding cost structures and making decisions based on cost analysis.
The use of cost units
Organisations use cost units to accurately allocate costs. This is essential for evaluating productivity, profitability and making informed decisions. Without this specification, it can be difficult to understand the true cost of products, services or activities. This can lead to inefficiencies and sub-optimal decision-making. One applies cost drivers optimally by carefully selecting them based on relevant cost distribution and activity levels.
What structure do I apply?
When setting up a structure for cost units, it is crucial to first understand the organisational activities and cost flows. Identifying relevant entities, such as products, services and departments, and their interrelationships is the first step. A next step is to define clear criteria for allocating costs to each cost unit and ensure that the structure provides consistency and flexibility to cope with future changes.
Specifying costs in TriFact365
TriFact365 uses links with various accounting software. These links automatically synchronise cost units between the two systems. So you always have access to the relevant entities which improves the accuracy of cost allocation. If you want to know how to add cost unitsto a booking line, click here.