Write short notes on Cost centre and cost unit.
Answers
COST CENTRE:
Cost center includes a production or service location, function, activity or plant item in relation to which costs are determined. It may include a single expensive machine, a group of these machines and may be extended to individual departments or even the whole factory may be treated as a cost center in some cases. There are two types of cost center:
(1)Production Cost Centers:
Production cost centers are the cost centers directly involved in the manufacturing operations. Examples include molding, machining, assembly, shaping, welding, binding, cutting, etc.
(2) Service Cost Centers:
Service cost centers are incidental to the production process as products or cost units are not produced by them.
COST UNIT :
Cost unit is a unit of output (or a unit of service provided) which absorbs the cost centre’s overhead cost.
Often the cost units are the final products manufactured by the organization, e.g., vehicles for a vehicle manufacturer, passenger-mile in a transport business, operation in a hospital etc.