Cost Centre mini assignment question

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Please can anyone help me with the following unit 6 question.

Identify cost centres for the following activities:

Production Organisation
Service Organisation
Service Department

Many Thanks

Maggie

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Cost Centre question

    I'm not sure what you're after. Are you looking for examples of cost centres, or what they are?

    The classic definition of a cost centre is "a section of the business to which costs can be charged". This is usually either a part of the production process: "Cutting", "Moulding" and so on, or a service area supporting the production: "Stores", "Maintenance" etc.

    I found it made more sense when I got to the fixed overhead allocation and apportionment section of the unit. Ultimately, you're going to be assigning each cost to a production cost centre. The first thing to do is effectively to categorise the cost according to the part of the business it belongs to. These categories are your cost centres.

    For example, a courier service could have each vehicle as a cost centre: the costs relating to that vehicle- fuel, repairs, tax could each be allocated here.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Cost Centre question

    Thank you for a response.

    I know what cost centres are. The question which I have quoted in my first post is one which is on a mini assignment I have been give for unit 6. I have quoted it word for word.

    I am stuck because I thought that Production Organisation, Service Organisation and Service Department would have been the cost centres as opposed to the activities.

    Can anyone give me any further help.

    Many Thanks

    Maggie
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Cost Centre mini assignment question

    For the organisations, I'd probably break them down into departments (eg production, admin, maintenance, stores etc).

    It's possible that a service department might in itself be a cost centre, although it could be broken down into smaller cost centres. For example the business might provide services to commercial customers and domestic customers and treat those as different cost centres.

    Chris
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Cost Centre mini assignment question

    Hello Maggie, I think the original question is a bit vague and over general...

    I would define an organisation as being an ultimate entity - or corporation - that controls everthing underneath it i.e. it sits at the top of it's own 'family tree'. It is not a cost centre in itself but the sum of it's smaller parts, which are cost centres!

    A production organisation would be General Motors. It manufactures cars under different brand names for different market sectors e.g. GM in the US, Vauxhall in the UK, Opel in Europe etc... It may also own smaller manufacturers who market under their own brand names. The cost centres are many and varied, and could be further broken down into production and retail cost centres etc...

    A service organisation could be the Virgin empire, with many diverse markets such as the music industry, airlines, train networks, mobile phones, insurance etc... All markets will be cost centres - albeit very large ones - attracting costs and creating revenue which will all contribute to the global wealth of the Virgin entity.

    This might not answer your question, which as I've already said is a little vague and far too general - but taken with the other answers - it might help a little...

    Robert
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Cost Centre mini assignment question

    Thanks for your help

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