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CMA Foundation · Fundamentals of Financial and Cost Accounting · Meaning and Significance of Cost Accounting and its Relationship with Financial Accounting

A cost accountant at a Pune auto-parts firm wants to group expenses so that costs can be collected for a department such as the Machining Shop before being charged to products. What is the Machining Shop called in cost accounting terminology?

The Machining Shop is a cost centre, because a cost centre is a location, person or equipment for which costs are collected and controlled. It is not a cost unit, which is the measure of output, nor a cost driver, which is the factor causing cost to change.

  1. ACost unit
  2. BCost centreCorrect
  3. CCost driver
  4. DProfit centre

Explanation

A cost centre is a location, person or item of equipment for which costs are ascertained and used for cost control. A Machining Shop is a location where costs are collected, so it is a cost centre. A cost unit is the unit of product or service (such as one part) to which costs are charged.

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