Cost Centre Meaning | Cost Units – Cost Accounting

Cost Centre Meaning

It is a location, person or item of equipment for which cost may be ascertained and used for cost control. It is a convenient unit of the organization for which cost may be ascertained. The main purpose of ascertainment of cost is to control the cost and fill up the responsibility of the person who is in charge of the cost centre.

Types of Cost Centre

• Personal Cost Centre: It consists of a person or group of persons. e.g. machine operators, salesmen, etc.
• Impersonal Cost Centre: It consists of a location or an item of equipment or a group of these. E.g. factories, Machines etc.
• Operational Cost Centre: This consists of machines or persons carrying on similar operations.
• Process Cost Centre: This consists of a continuous sequence of operations or specific operations.
• Production Cost Centre: This is the centre where actual production takes place or these include, those departments that are directly engaged in manufacturing activity and contribute to the content and form of the finished product. e.g. Cutting, Assembly and Finishing Departments etc.
• Service Cost Centre: This is the Centre that renders services to production centres. These contribute to the production process in an indirect manner.
  e.g. Stores department, RepairsandMaintainance department, H.R. Department, Purchase Department etc.

Meaning of Cost Units

It is a unit of product, service, or time in terms of which costs is ascertained or expressed. It is basically, a unit of quantity of product or service in relation to which costs may be ascertained or expressed.

A few examples of cost units are given below.

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