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CA Intermediate · Cost and Management Accounting · Introduction to Cost and Management Accounting

Which of the following is correctly classified as a cost centre in a manufacturing company rather than a cost unit?

A machining department is the cost centre. A cost centre is a location, person or equipment for which costs are collected and controlled, whereas a tonne of steel, a batch of pumps or a job are cost units, meaning measures in which cost is expressed.

  1. AA machining department in which costs are collected before being charged to productsCorrect
  2. BOne tonne of steel produced by the plant
  3. COne batch of 500 pumps
  4. DOne job for a customer order

Explanation

A cost centre is a location, person or item of equipment for which costs are ascertained and used for control. A machining department fits this. A tonne, a batch and a job are units of product or service in which cost is expressed, so they are cost units.

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