Introduction of Cost Accounting

By Vishnu Pujari

Dept. of Commerce

S.V.S. College, Bantwal.

Cost Unit

“A unit of product, service or time in

relation to which costs may be ascertained and

expressed” - I.C.M.A., London

A cost unit is the unit of quantity of product,

service or time in terms of which costs can be

conveniently computed.

Types of Cost Units

Cost units are of 2 types:1. Simple or Single Cost Unit.

(single unit of cost)

Example: a ton, a kilogram, a litre, a metre, etc.

2. Composite or Compound Cost Unit.

(Combination of two simple cost units)

Example: ton-kilometer, passenger kilometer,

kilowatt – hour, etc.

Following are some of the cost units and the

product/industries to which they are applicable:

Product/Industry Unit of Cost

Building Square foot/ floor area

Cable Metre

Cement Ton/bag

Electricity Kilowatt/megawatt

Canteen Meal plate/glass

Furniture Number

Transport Ton kilometer/ passenger

kilometer

Cost Centre

“ A location, person or item of equipment

for which costs may be ascertained & used for

the purpose of cost control”.

--I.C.M.A. London

Classification of Cost Centre

Cost centre are classified as follows:

1. Production Cost Centre

2. Service Cost Centre

3. Mixed Cost Centre

4. Personal Cost Centre

5. Impersonal Cost Centre

6. Operation Cost Centre

7. Process Cost Centre

Production Cost Centre:

It’s a cost centre which is directly concerned with

production or manufacturing.

Examples: Machine shop, Welding shop, Assembly shop, etc.

Service Cost Centre:

It’s a cost centre which isn’t engaged in production, but

provides service to production centre.

Examples: Power house, Store house, Canteen, etc.

Mixed Cost Centre:

It’s a cost centre which isn’t engaged in both production

and service work.

Personal Cost Centre

A cost centre consisting of a person or group of persons.

Eg: foreman, sales manager, salesman, etc.

Impersonal Cost Centre

A cost centre which consists of a location or an item.

Eg: an area, such as a department, store yard or an item such as, machine or equipments etc.

Operation Cost Centre

A cost centre consisting of both men & machines or any one of these carrying out similar operations..

Process Cost Centre

A cost centre consisting of both men & machines or any one of these carrying out a specific process or a continuous sequence of operations.

Purposes served by cost centre

• Cost Ascertainment: It is made possible by accumulating or collecting costs and allocating or charging costs to each cost centre.

• Cost Control: It is ensured by allocating different cost centres to different managerial personnel and holding each managerial personnel responsible for the control of the cost of the cost centre under his control. Thus, cost centre is also known as responsibility centres.

Thank You