What is the difference between cost center and cost unit?

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

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.


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.



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