Chapter – 6 Cost Centre

Cost Centre may be defined as “a Location or Person or  Place or Machine or  Thing for which cost can be ascertained and used for the purpose of Cost Control. “Hence, Cost Centre may be a Department, Division, Product or even a person to which cost can be ascertained. It is mainly for the purpose of monitoring and controlling the cost.

Otherwise, this can be described as parallel analysis that gives Branch / Division / Department wise Profit & Loss account.

To enable cost center, press F11, F1 keys one by one and Set ‘Yes’ to ‘Maintain Cost Centres’ field.

Enabling ‘Cost Centre’ feature           

Enabling Feature in Masters

Entering Cost Centre details in vouchers

Display of Cost Centre Reports

Printing Cost Centre Reports

Cost Category – Enabling, Entry & Reports:

Cost category is probably misinterpreted as head of Cost Centres. Accountants are trying to use this like Groups. But the usage of Cost Category is for absorbing expenses to identical set of cost centres.

Let us assume that a company holds 3 Cars and 3 Drivers. All three Drivers will drive any Car and fill Fuel from an authorized Petrol station. The company wants to check the fuel economy of each Vehicle and to control any theft by Driver. In this case, if Drivers are meant as Cost Centres, Car details will not be available. If Cars are considered as Cost Centres, Driver details will be missing. To get both, Cost Category must be activated.

Chapter – 6 Cost Centre & Cost Category

Exercise:

Create a company by name ‘Cost-1’ with your Regn.no. For ex:’Cost-1’, Choose ‘Accounts with inventory’ and Enable Cost Centre alone. Imagine that the company is a dealer for rain coats and its head office is at Thanjavur and has a branch in Karur.

  1. 100 Rain Coats purchased on credit from M/s Duckbag for Ho Sales Credit 27500
  2. 10 Rain coats sold locally                               Cash                4000
  3. Lorry Charges given for rain coats                Cash                1500
  4. 50 Rain coats sold by HO for DD                  DD                  18750
  5. 50 Rain coats purchased on credit from

M/s Duckbag for karur branch                       Credit              13750

  • Lorry charges given for rain coats                 Cash                1200
  • 30 Rain coats sold at HO for DD                   DD                  11250
  • Stationery purchased at karur                         Cash                175
  • 5 Rain Coats sold locally at karur                  Cash                2000
  • 25 Rain Coats sold by karur for DD              DD                  9375
  • Refreshment bill paid at Thanjavur                Cash                342
  • 10 Rain Coats sold locally at Thanjavur        Cash                3800
  • 7 Rain coats sold locally at karur                   Cash                2800
  • 3 Rain coats sold locally at karur                   Cash                1200
  • 10 Rain coats sold by karur for DD               DD                  3800
  • Salary-Thanjavur Staff                                   Cheque            6000
  • Salary- Karur Staff                                         Cash                3000
  • Coffee, Tea expenses at Karur                       Cash                126

Prepare 1.Cost Category Summary, 2. Cost Centre break-up for Thanjavur, 3. Ledger breakup for Sales and 4. Compare P & L A/c with Cost Category Summary.