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Hi. I am even ashamed to ask this here but I am having difficulty understanding the concept of cost unit and cost centre.
As I understood cost unit, it is a unit of product and service I can put a price on?
And what is the cost centre exactly including definition plz ?? (I already have read the definition on the note but I still dont get it)
I would be really appreciated for ur help sir
You are correct about the cost unit.
For cost centres, here is a simple illustration:
Suppose we make various products and in one room we build the products and in another room we paint them. There are all sorts of costs incurred in each of the two rooms, so we would calculate the total cost for each room, and then we could calculate the cost per unit for each product in the building room and in the painting room. Each of the two rooms would be a cost centre – a place where costs are incurred.I assume that you are watching our free lectures (they are a complete course for Paper F2 and cover everything needed to be able to pass the exam well). If you look again at example 3 in chapter 7 of the lecture notes (and the lecture that works through the example) then desks and chairs are cost units, and the assembly and finishing departments are cost centres.
I hope that helps 🙂
Thank you sir^^
So simply saying, in the business ,the cost centre is a department where costs can be incurred? 🙂
Hi sir ! I have question ..An investment division currently has net assets of £500000 and is earning profits of £ 70000 per annum. The divisional manager considering a new investment which will cost £20000 and will generate additional profits of £2200 per annum. The company has a cost of finance of 10% what is the RI for the division with and without the new investment??
Calculations : without the new investment RI= 20000 -(10%*500000)=(30000)
RI with the new investment =22200-(10%*520000)=(29800)
My question is RI =profit -( investment* cost of capital) . sowhy we do not use 70000 profit?? Why we use 20000?? Plz help me sir… ThanksSorry it is a typing error in the question – the profit should be shown as 20,000 (otherwise what you are saying would be correct).
Thank you for noticing – I will have it corrected.
(Please start a new thread when it is a new topic – this has nothing to do with cost units)
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