Cost Center and Cost Unit


Cost Center: 
Cost center is a location, person or item of equipment for which cost may be ascertained and used for the purpose of cost control. ICMA defines cost center as "a production or services. Factions, activity or item of equipment whose costs may be attributed to cost units. A cost center is the smallest organizational sub-unit for which separate cost allocation is attempted." For functional point of view, a cost center may be relatively easy to establish, because a cost center is any unit of the organization to which costs can be separately attributed. A cost center is an individual activity or group of similar activities for which costs are accumulated. For example, production departments, a machine or group of machines within a department or work group is considered as cost center.

Cost Unit:
A cost unit is a unit of product or unit of service to which costs are ascertained by means of allocation, apportionment and absorption. CIMS defines cost units as "a quantitative unit of product or service in relation to which cost are ascertained". It is a unit of quantity of product, service or time or a combination of these in relation to which costs are expressed or ascertained. It is useful measurement of cost for comparative purposes. In preparing cost accounts, it becomes necessary to select a unit with which expenditures may be identified. The examples of some cost units are given below:
1. Industry/enterprise
2. Brick works
3. Collieries
4. Textile mills
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