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A2 Chapter 32 Costs (A Level)Case Study page 476.
Reasons for the need for accurate costing information:
1. Pricing decisions.
2. Production decisions.
3. Setting budgets & targets & evaluating performance against
these.
Costing concepts:
1. Cost centre a department , division or section of a business
to which costs can be allocated.
See examples page 477.
2. Profit centre a department , division or section of a business
to which both costs and revenues can be allocated, thus profit
can be calculated.
Benefits & Limitations of using cost & profit centres
Benefits Limitations
Read through page 477 (left) and summarise
Note: A common exam question asks you to evaluate the usefulness of using profit centres in a given
context.
Activity 32.3 page 479
1
, Costing concepts:
3. Overheads 4 main groups:
i. Production overheads factory rental, rates, power
charges, depreciation of equipment.
ii. Selling & distribution overheads warehousing,
packaging, distribution costs, sales staff salaries.
iii. Administration overheads office rental, rates, salaries
of clerks and executives.
iv. Finance overheads interest on loans.
4. Unit cost The average cost of producing each unit of
output. Important in determining price.
Unit cost = total cost of production
number of units produced
2
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