Q7. What do you understand by the term cost center?
Ans. It is defined as location, person or an item of equipment(or group of these ) for which cost maybe ascertained and used for the purpose of cost control. A Cost center maybe a particular workbench or machine or group of machine of one type or an activity or a location. It is classified into four center:
- Personal Cost Center: Cost center, which consists of a person or group of persons called personal cost center.
- Impersonal Cost Center: It consists of a location or an item of equipment( or group of these).
- Production Cost Center: Cost Center which produce goods called production cost center. For example machine shop, welding shop etc.
- Service Cost Center: It is a cost center which serves as an ancillary unit to a production cost center.