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

In a textile mill owned by Kaveri Fabrics Ltd, the 'Dyeing Department' is treated as a location to which costs are collected before being charged to products. In cost accounting terms, the Dyeing Department is best described as a:

The Dyeing Department is a cost centre because it is a location to which costs are collected and controlled before being charged to products. A cost unit would be the measure of output, such as a metre of cloth, not the department itself.

  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 department to which costs are collected is therefore a cost centre. A cost unit is the unit of product or service (such as a metre of cloth) in which costs are expressed, so it is wrong here.

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