Cost centre and Cost Unit

 

Cost Centre and Cost Unit 

The organisation is divided into small parts or sections to ascertain cost.   Each small section is treated as a call centre of which cost is ascertained. A cost centre is defined by CIMA, London as "a location, person, or item of equipment for which costs may be ascertained and used for the purpose of control'.

It may be a division, department, job or job order, a single product or a bunch of products, it may be a person also.

Cost centres are primarily of two types 

a) Personal call centres -which consist of a person or a group of persons 

b)  Impersonal cost centres- which consist of a location or an item of equipment or a group of equipment

From the functional point of view cost centres may be of the following two types:

1) Production cost centres:-  these are those cost centres where actual production work takes place.

 for example weaving department in a textile mill a shop in a steel mill, a cane-crushing shop in a sugar mill etc 

2) Service call centre:- cost centres that are ancillary to and render services to production are known as service cost centres. e g  powerhouse, tool room, store department, repairs and maintenance shop, canteen etc 

A cost accountant sets up cost centres to enable him to ascertain the cost he needs to know. A cost centre is charged with all the costs that relate to it, for example, if the machine is a cost centre, it will be charged with the cost of power, light, depreciation and its share of rent etc  The purpose of ascertaining the cost of a cost centre is to control the cost. The person in charge of a cost centre is held responsible for the control of the cost of that particular cost centre.

Cost Unit

A cost unit is defined by CIMA London as a unit of product or service in relation to which cost or asserting ascertain for example in a sugar mail the cost per turn off sugar in a textile male the cost per metre of cloth maybe ascertain does a tonne of sugar and meter of cloth are cost units in short cost unit is unit of measurement of cost 

Broadly cost units may be of two types as explain below 

Units of production -for example a ream of paper, a turn off Steel a meter of cable etc

Units of service- for example passenger miles, cinema seats, consulting hours etc a few more example of cost units in various industries are as follows 

Cement- Tonne

Chemicals:- Tonnes, kilogram, litre, gallon etc

Bricks -1000 bricks or 500 bricks

Soft drink- a crate of 24 bottles or 12 bottles

Hospital - bed per day or patient 

Interior decoration-each job 

Electricity- kilowatt hours 

Transport passenger- kilometre or tonne kilometre 

Printing press- 1000 copies 

Building construction each building or flat 

Hotel- room per day 

Education -cost per student

Petroleum- barrel or Tonne or  litre