Skip to content

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

Sharma Textiles has a stitching department where workers directly convert cloth into garments, and a canteen that serves all staff. Which classification is correct?

Stitching is a production cost centre because it directly converts cloth into garments, while the canteen is a service cost centre because it only supports other departments and does not work on the product.

  1. ABoth are production cost centres
  2. BStitching is a production cost centre and the canteen is a service cost centreCorrect
  3. CStitching is a service cost centre and the canteen is a production cost centre
  4. DBoth are service cost centres

Explanation

A production cost centre is directly engaged in making the product, such as stitching. A service cost centre, such as the canteen, renders support to other departments and does not handle the product. Hence option B is correct and the reversed classification is wrong.

Did you get it right without looking?

One question tells you little. A timed set on Cost, Cost Centre, Cost Unit and Cost Drivers shows your real accuracy, how long you take and where you lose marks.

Practise Cost, Cost Centre, Cost Unit and Cost DriversFree diagnostic mock

More Cost, Cost Centre, Cost Unit and Cost Drivers questions