It is the process of classifying, recording and appropriate allocation of expenditure for the determination of costs of products or services through the presentation of data for the purpose to take decisions and guide the business organization.
The next one important aspect is the differences between the cost accounting and management accounting.
What is a cost of a product ?
Cost denominates the use of resources only in terms of monetary terms. In brief, cost is nothing but total of all expenses incurred for manufacturing a product or attributable to given thing. In clear, the cost is nothing but ascertained expression of expenses in terms of monetary, incurred during its production and sale.
To ascertain a cost, the firm should atleast smallest division of activity or responsibility for which costs are accumulated, at where the costs ascertained and controlled. In brief, cost centre normally a location where a specified activity takes place.
Accumulation of all cost incurred for an activity leads to ascertainment of cost for the specified activity, but the control is being done by the head or incharge of that activity is responsible for control of costs of his centre.
Product centre is a centre at where the cost is ascertained for the product which passes through the process.
Service centre is the centre or division which normally incurs direct or indirect costs but does not work directly on products. Normally, Maintenance dept. and general factory office are very good examples of the service centre.
Apart from the above classification, one more important centre is profit centre.
What is meant by profit centre?
It is a centre not only responsible for both revenue as well as expenses but also for the profit of an activity.
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