3RD NOTES

COST CENTER

COST CENTER IS DEFINED AS, “A PRODUCTION OR

SERVICE, FUNCTION, ACTIVITY OR ITEM OF EQUIPMENT
WHOSE COSTS MAY BE ATTRIBUTED TO COST UNITS”.
A COST CENTER THE SMALLEST ORGANISATIONAL
SUBUNIT FOR WHICH SEPARATE COST ALLOCATION IS
ATTEMPTED.
COST CENTRE IS NOTHING BUT A LOCATION, PERSON OR
ITEM OF EQUIPMENT FOR WHICH COST MAY BE
ASCERTAINED AND USED FOR THE PURPOSE OF COST
CONTROL
FOR EXAMPLE, A PRODUCTION DEPARTMENT, STORES
DEPARTMENT, SALES DEPARTMENT IT CAN BE COST
CENTERS.
SIMILARLY AN ITEM OF EQUIPMENT LIKE A FORK-LIFT,
TRUCK AUR DELIVERY VEHICLE CAN BE A COST CENTER.
A PERSON LIKE SALES MANAGER CAN BE A COST CENTER.
THE MAIN OBJECT OF IDENTIFYING A COST CENTER IS
TO FACILITATE COLLECTION OF COSTS SO THAT
FURTHER ACCOUNTING IT WILL BE EASY.
 PROFIT CENTER

PROFIT CENTER IS DEFINED AS ‘A SEGMENT

OF BUSINESS ENTITY BY WHICH BOTH
REVENUES AND EXPENSES ARE INCCURED
OR CONTROLLED’.
A PROFIT CENTER IS ANY SUB UNIT OF AN
ORGANISATION TO WHICH BOTH REVENUES
AND COSTS ARE ASSIGNED.
A DIVISION OF AN ORGANISATION MAY BE
CALLED AS PROFIT CENTER. THE
PERFORMANCE OF PROFIT CENTER IS
EVALUATED IN TERMS OF THE FACT WHETHER
THE CENTRE HAS ACHIEVED ITS BUDGETED
PROFITS. THUS THE PROFIT CENTER CONCEPT
IS USED FOR EVALUATION OF PERFORMANCE.
 COST UNIT

EXAMPLE :
CALCULATE THE MANUFACTURING COST PER
UNIT FOR EACH PRODUCT PRODUCED IN JULY.
JK PAPER PRODUCTS PRODUCES THREE
DIFFERENT PAPER PRODUCTS SUPREME,
DELUXE AND REGULAR. SUMMARY DATA (IN
MILLIONS) FOR JULY ARE AS FOLLOWS:
Particulars Supreme Deluxe Regular
Direct 84 54 62
material
cost
Direct 14 28 8
labour cost
Manufacturi 42 84 24
ng overhead
cost
Unit 80 120 100
produced