Q.What do you mean by Cost Centre? State its different types.

A cost centre is how an organisation breaks itself down into manageable pieces for the purpose of collecting and controlling cost.

A Cost Centre is a location, person, department, or item of equipment (or a group of these) in respect of which costs are ascertained and related to cost units, for cost control purposes. Cost centres are commonly classified as Personal (a person or group of persons), Impersonal (a location or piece of equipment), Production (where actual manufacturing takes place, e.g. a machine sho …

A Cost Centre is a location, person, department, or item of equipment (or a group of these) in respect of which costs are ascertained and then related to cost units, for the purpose of cost control. It is essentially a convenient sub-division of the whole organisation for cost purposes, so that expenditure can be collected and monitored against smaller, identifiable units of responsibility rather than only against the business as a whole.

Cost centres are commonly classified into the following types:

1. Personal Cost Centre — a cost centre that consists of a person or a group of persons, e.g. a works manager or a sales team.
2. Impersonal Cost Centre — a cost centre that consists of a location or an item of equipment, e.g. a particular machine, a department, or a stores yard.
3. Production Cost Centre — a cost centre where the actual manufacturing or processing operation is carried out, directly engaged in converting raw material into finished output, e.g. the spinning department of a textile mill, or the machining shop of an engineering unit. …

A frequent error is confusing a Cost Centre with a Cost Unit — a cost centre is WHERE cost is collected (a place/person/machine), while a cost unit is the MEASURE in which the resulting cost is expressed (per tonne, per metre). Also, students often forget the Service Cost Cent …