cost centre and cost unit

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Guest (Querist) 06 September 2009

I cant understand what is cost centre and what is cost unit.can you please give me the concept of this two by giving example

Chandraprakash Ramjalwar (Expert)
06 September 2009

1) Cost Centre: It is defined as a location, person or an item of equipment (or group of these) for which cost may be ascertained and used for the purpose of Cost Control. Cost Centres are of two types, viz. Personal and Impersonal.

A Personal Cost Centre consists of a person or group of persons and an Impersonal Cost Centre consists of a location or an item of equipment (or group of these).

In a manufacturing concern there are two main types of Cost Centres as indicated below:

i) Production Cost Centre: It is a cost centre where raw material is handled for conversion into finished product. Machine shops, welding shops and assembly shops are examples of production cost centres.

ii) Service Cost Centre: It is a cost centre which serves as an ancillary unit to a production cost centre. Power house, gas production shop, material service centres, plant maintenance centres are examples of service cost centres.

2) Cost Unit: It is an unit of product, service or time (or combination of these) in relation to which costs may be ascertained or expressed. We may for instance determine the cost per tonne of steel, per tonne kilometre of a transport service or cost per machine hour.

Cost units are usually the units of physical measurement like number, weight, area, volume, length, time and value. A few typical examples of cost units are given below:

Industry of product Cost Unit Basis
Automobile- Number
Cement - Tonne/per bag etc.
Chemicals-- Litre, gallon, kilogram, tonne.
Power ---Kilo-watt hour
Steel ---Tonne
Transport --Passenger kilometre.

Hope the concepts are now clear...

06 September 2009

Nice explain

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