COST CENTRE AND COST UNIT

COST CENTREA defined area, machine or person to

whom direct and indirect cost are allocated. Also known as Cost pool and Expense Centre.

It is a department within a company that does not produce direct profit and adds to the cost of running a company.

The manager and employers of a cost centre are responsible for its costs but not responsible for revenues or investment decisions.

TYPES OF COST CENTRE Process Cost Centre Product Cost Centre Service Cost Centre Impersonal and Personal Cost Centre Operation Cost Centre

COST UNITWhile preparing cost accounts, it becomes

necessary to select a unit with which expenditure may be identified.

The quantity upon which cost can be conveniently allocated is known as a unit of cost or cost unit.

E.g. per person, per piece , per kg etc.

ELEMENTS OF COSTThe elements can be classified in

following three parts: Material Labour Overheads

MATERIALThe substance or substances out of which

a thing is made.It is principle substance or equipment that

is used in production for making the products. It is the basic raw material for finished goods. E.g. Cotton.

It is of 2 types: Direct material Indirect material

LABOURIt is physical and mental effort used in

production. It is active factor. It is of two types:

Direct Labour Indirect Labour

OVERHEADSOverheads means the expenses. It

includes the direct expenses and indirect expenses as well. Its types are:

Factory Overheads Administrative Overheads Selling and Distributive Overheads

COMPONENTS OF TOTAL COSTThe Total Cost is the sum of following

components: Prime cost Factory cost Office cost Total cost

COST CLASSIFICATION Behavioural Classification Functional Classification Controllable cost and Uncontrollable

cost Direct cost and Indirect cost Product cost and Period cost Relevant cost and Irrelevant cost