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

Which of the following is correctly classified as a service cost centre in a manufacturing company?

The boiler house supplying steam to all departments is a service cost centre because it renders service to other cost centres and does not work directly on the product. Assembly, machine shop and painting are production cost centres that process the product directly.

  1. AAssembly department
  2. BMachine shop
  3. CPainting department
  4. DBoiler house supplying steam to all departmentsCorrect

Explanation

A service cost centre does not handle the product directly but renders service to other departments. The boiler house supplying steam to all departments fits this. Assembly, machine shop and painting work directly on the product, so they are production cost centres.

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