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It is written that “They (Cost center) act as collecting place for overheads before they are analyzed further.”
What is meant by this?For example, take the accounting department. You want to calculate how much that is costing the company (perhaps it can be outsourced instead of being in-house).
It is a cost centre, that can be defined as “A part of a company considered as unit so that the costs relating to it can be calculated for the company’s accounts”.
So, for the accounts department there will be direct costs (such as the wages of the people working there) and indirect costs, or overheads, (such as the share of the organisation’s rent that is used to house the accounts department).
Process costing is not possible to build up cost records of cost per unit of output because production in progress in an indistinguishable homogenous mass.
Please explain this too.Think of processing cruce oil to petrol. Each litre of petrol is identical and produced continuously with millions of litres. Each litre cannot be separately identified so specific costs cannot be traced into it.
The best that can be done to calculate the cost per unit is to accumulate all the costs for a day (for example) and divide that total by the number of litres made in that day.
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