Cost Accounting Systems

Learning Objectives
 Be able to explain cost centre
 Able to elaborate with examples of each cost to service &
manufacturing industries.
 Cost Unit
 Cost incurred by a company to produce, store and sell one unit
of a particular product.(can be traced)
 All costs involved in the production.

Examples:
 Units of production – ream of paper, a tonne of steel
Units of services – consulting hours, room per day
 Cost Units Uses
Kilowatt hours To determine electricity cost

Litres To determine cost of petrol

Tonnes To determine the cost of coal used

Consulting hours To determine cost of providing advise by a

lawyer
 Responsibility Accounting
Responsibility accounting is a system that measures the results of each
responsibility center and compares those results with some measure of
expected or budgeted outcome.

Types of responsibility centers:

 Cost center
 Profit center
 Investment center
10-6

Responsibility Accounting

Cost Profit Investment

Center Center Center

Cost, profit,
and investment
centers are all
known as Responsibility
Center
responsibility
centers.
Cost Centre
 A location, person or item of equipment for
which costs may be ascertained and allocated.
 It refers to a section of the business to which
costs can be charged.
Examples:
 Production cost centre – manufacturing department, assembly
department
 Services department – maintenance & cafeteria department
 Flow of cost
charged to
Absorbed by
Cost Centre 1

COST Cost Centre 2 Cost Unit Cost per

unit
Cost Centre 3
Profit Centre
 A segment where manager has control over
BOTH costs and revenues related activities.

Example:
 Fast food chain – KFC.
Investment Centre
 Where the manager has authority and
responsibility for costs, revenues and
investments.
Example:
 Corporate headquarters.
10-11

Responsibility Centers

Investment
Centers Superior Foods Corporation
Corporate Headquarters
President and CEO

Operations Finance Legal Personnel

Vice President Chief FInancial Officer General Counsel Vice President

Salty Snacks Beverages Confections

Product Manger Product Manager Product Manager

Bottling Plant Warehouse Distribution

Cost
Manager Manager Manager
Centers
10-12

Responsibility Centers
Superior Foods Corporation
Corporate Headquarters
President and CEO

Operations Finance Legal Personnel

Vice President Chief FInancial Officer General Counsel Vice President

Salty Snacks Beverages Confections

Product Manger Product Manager Product Manager

Bottling Plant Warehouse Distribution

Profit
Manager Manager Manager
Centers
10-13

Responsibility Centers
Superior Foods Corporation
Corporate Headquarters
President and CEO

Operations Finance Legal Personnel

Vice President Chief FInancial Officer General Counsel Vice President

Salty Snacks Beverages Confections

Product Manger Product Manager Product Manager

Bottling Plant Warehouse Distribution

Cost
Manager Manager Manager
Centers