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CMA Final · Cost and Management Audit · Overview of Cost Accounting Standards and GACAP

Under CAS 3 (Overheads), how is the cost of a service cost centre generally dealt with when its services are used by production cost centres?

Service cost centre costs are apportioned to the production cost centres they serve, using a suitable basis that reflects the benefit received, such as usage or consumption. They are not written off directly or ignored, because they form part of the product's cost.

  1. AIt is written off to the costing profit and loss account without allocation
  2. BIt is apportioned to production cost centres on a suitable, scientifically determined basisCorrect
  3. CIt is added to closing stock only
  4. DIt is excluded from the cost of the product entirely

Explanation

Overheads of service cost centres are secondary distributed to the production cost centres that benefit, using an appropriate basis such as usage or consumption. Writing them off or excluding them would understate product cost.

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