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Emin Radwan
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    The differences between cost centre and cost unit are as follows: PARTICULARS COST CENTRE COST UNIT MEANING A cost centre refers to the costs incurred about any part of the organisation such as activities, different functions, service or production location, etc. These departments or functions do noRead more

    The differences between cost centre and cost unit are as follows:

    PARTICULARS COST CENTRE COST UNIT
    MEANING A cost centre refers to the costs incurred about any part of the organisation such as activities, different functions, service or production location, etc. These departments or functions do not affect the profit of the organization directly however, monetary costs are incurred to operate the same. Cost unit refers to the cost incurred on a measurable unit of product or service of the organization.
    FUNCTION The main function of a cost centre is to classify costs as well as track expenses. It functions as a standard of measure for making comparisons with other costs.
    COST MEASURE The overall costs in a cost centre are gathered by the cost units. The unit of cost absorbs all the overhead costs. The overall costs are measured in terms of direct and indirect costs of tangible units.
     

    ASCERTAINMENT

    It is determined through the efficiency of operations, services provided to the customers, organizational structure, size, technique of production etc. It is determined as per the final products and trade practices. However, it is strictly not restricted to the same.
    RANGE Even if a single product or service is provided there are a lot of cost centres. Every individual product or service has a different cost unit.

     

     

     

    EXAMPLES

    A company’s IT, accounting, Research and development department, manufacturing activities, customer services, etc.  Automobile industry – no. of vehicles, gas – cubic metre, education – student year, etc.

     

    Hope this helps.

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Sapna Takia
  1. This answer was edited.

    I think firstly you should have a glance over the concept of cost centre and then try and apply the concept while interpreting below given example. Meaning 0f a Cost Centre It's a smaller part of a larger organization wherein the manager of such unit is responsible to keep cost inline or within theRead more

    I think firstly you should have a glance over the concept of cost centre and then try and apply the concept while interpreting below given example.

    Meaning 0f a Cost Centre

    It’s a smaller part of a larger organization wherein the manager of such unit is responsible to keep cost inline or within the budget. Unlike profit centres, the managers of the cost centre do not have any direct responsibility for the profits of the organization.

    Few Examples of Cost Centre

     

    Example of a cost centre

    In the case of Walmart, its corporate office will have an accounting department, marketing department, information technology department. These departments do not generate any revenue.

    Take up the Accounting department- one can not argue that the accounting dept. is responsible for generating revenue. It will have only one responsibility to incur cost within the specified budget.

     

    Example of a cost centre

    In the case of XYZ Ltd., the marketing dept, finance dept and production dept are the primary cost centres but the sales executives Mr A, B and C are also considered as cost centres. This will help the organization to track its performance.

     

    example of a cost centre

    In the case of ABC university the reading hall, computer lab and careers i.e its HR dept. are the cost centres as these departments only incur the cost and help in providing better educational services but the manager or an in charge of these departments are not engaged directly with generating revenue.

     

    Example of cost centre

    Here in the case of Uber Inc. the human resources department, project managers and customer service department are cost centres as these do not generate revenue directly. We will analyse the HR department-It does not generate revenue as its the administrative department but it’s an essential part of an organisation. It helps in storing data of the employees, manages their complaints, hiring, promoting and terminating employees of the organisation.

    The project managers are responsible to plan a project they are also responsible to prepare its budget and track its progress. They as such do not add up to the profit but are important to complete the project.

     

     


    Aastha Mehta.

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