Cost Unit and Cost Centre

(C) Distinguish between, and provide an illustration of what constitute a “cost unit” and a             “cost centre”           

Cost Unit

•  is a unit of product or service produced by the company in relation to which costs are ascertained and expressed.
• cost unit defined as standard of measure unit of goods manufacturing.  
• It is based on the type of industries, production purpose, and information available.
• A business classify cost unit in manufacturing and non-manufacturing.
• Its objective is to analysis, determine and distinguish cost of production which can be control the efficiency and effectiveness of labor.
• For example, in a printing firm producing books, each book is counted as a cost unit.

Cost Centre

• A cost centre is a location, function or items of equipment in respect of which costs may be ascertained and related to cost units for control purposes.
• Cost centre are part of the organisation structure of the business.
• Cost centre is a “ collecting place” for costs.
• Brief, we can identify various department in a company can be defined as cost centre.
•  For example, A printing firm has printing presses costing Rm 2 each, machine is the cost centre.

Combine

• Cost is an expenditure incurred for a specific product or activity and charge charged to a cost centre only when it can’t be charged to the product.
• For example, take two costs incurred in a workshop of a garage, the wages of a mechanic working on customers' cars and the cost of electricity used for powering workshop tools and lighting.
• The wages of the mechanic can be identified with cost units provided a record is kept of how much time has been spent, e.g. by each repair or service job, but it is not practical to record the electricity attributable to specific jobs.
• This cost should be allocated to the cost of running the workshop which is cost centre.
• Cost unit collect direct cost whereas cost centre collect indirect cost.
• Finally, production cost is computed by adding cost unit and cost centre.