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CMA Foundation · Fundamentals of Financial and Cost Accounting · Cost, Cost Centre, Cost Unit and Cost Drivers

In a textile mill, the dyeing department is a location where costs are collected before being charged to products. In cost accounting terms, this department is best described as a:

The dyeing department 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 such as a metre of cloth, nor a cost driver.

  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 control. The dyeing department is a location where costs are accumulated. A cost unit is the unit of product or service, such as a metre of cloth, so it is not the correct term here.

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