Costing Principles: Cost Unit Versus Cost Centre

What is the difference between cost unit and cost center?

A Cost Unit

Is the quantitative unit of product or service in relation to which costs can be ascertained.


Jobs, contracts, kilowatt hours, cost per patient day

A Cost Centre

Is “a location, person or item of equipment ( or group of these) in respect of which costs may be ascertained and related to cost units’

In a business, it is divided into sections called cost centre where costs are accumulated.

Example of Classification of Cost centre:

Production cost centre:

– where production takes place like machining and assembling department.

Service Cost Centre:

– which provides services to other cost centre like stores, production planning, store and maintenance.

Process Cost Centre:

– where a specific process or a continuous sequence of operations take place like refining process.

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