b'The importance of cost 1.19 Under the conditions provided in article 2(3) of the Local Government (Best Value Authorities) (Power to Trade) England Order 2009 (SI 2009/2393), issued under the Local Government Act 2003, a local authority must recover the costs of any accommodation, goods, services, staff or any other thing it supplies to a company in pursuance of any agreement or arrangement to facilitate the exercise of the power. But what is cost? To an accountant, cost is an expression that is capable of being defined in different ways and it is not a set amount. It is for each authority making use of the power to trade to establish a robust methodology for assessing the costs to the authority of providing assistance to a trading company. Knowing the cost of an item or an activity makes it possible to calculate the profit/loss of that item or activity. This is very important. Sometimes businesses are not aware that they are making a loss on a specific item or activity because some of the costs that should be attributed to that product or activity have been absorbed elsewhereso that one part of the business is subsidising another part.There are several main components of cost: (1)direct costs that can be associated directly with the production of a unit of a product or service, eg raw materials, and labour costs that can be specifically associated with that particular unit; (2)indirect costs that cannot be tied down to specific units of output. For example, in a printing unit producing several different types of publication management costs and other overheads such as lighting and heating may not be able to be tied down to particular product lines. These indirect costs then need to be apportioned in a sensible way among the various product lines; (3)overheadscentral costs relating to the provision of services including a portion of the council house building and finance teams; (4)costs of capitalthe finance costs required to run the activity and can also include expected return on investments. 23'