The Cost Centers. They are areas of responsibility that accumulate costs, generally respond to the dependencies of the organization or company . Each cost center is responsible for the resources necessary to carry out its activities.
Summary
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- 1 Accounting by Cost Centers
- 2 Accounting procedure of cost centers
- 3 Cost adjustment
- 4 Sources
Cost Center Accounting
From the principles of accounting, when some businesses carried out various activities, it became necessary to divide accounting into cost centers to determine the profitability of each area of production or services. For example, in a company that is dedicated to livestock, there are several types of productions, eg: cattle, sheep, pigs, goats, rabbit heads, poultry, milk, among others. In these cases, it becomes imperative to divide accounting by cost centers to determine which of these activities is profitable and which is not. We have a global account, for example “705 – Animal Production in process”, but within it, we must code each cost center to determine its profitability.
Accounting procedure of cost centers
Cost centers are generally associated with accounting accounts of a debtor nature, which is why they are debtors, that is, they increase their balance by “debit” and decrease by “credit”. The annotations that are made by the “must” correspond mostly to all expenses incurred by that activity, for example, we have the cost center “Cattle”, this will be charged all expenses for medicines, food , workforce, social security etc, and balances will be downloaded or credited for the sale of animals, finished production, credits for animal deaths, and cost excesses, the latter against a direct expense account. It is recommended that at the end of the accounting period, Each cost center has a balance that is equal to or slightly below the real value of production in the market, which is determined by multiplying the number of physical units in process by the approved price of the same, for example, If we have 100 fattening bulls, each weighing 430 kg, then we would have a total of 43,000 kg of meat in process. If the market price of kg of meat is 8 pesos, then the balance of this cost center at the end of the accounting period should be around 344000.00 pesos. It is advisable to carry out this operation at the end of each accounting period, since in this way we will really know what the company has and future decisions in the business can be determined. This is determined by multiplying the number of physical units in process by its approved price, for example, if we have 100 fattening bulls, and each weighs 430 kgs, then we would have a total of 43,000 kgs of meat in process. If the market price of kg of meat is 8 pesos, then the balance of this cost center at the end of the accounting period should be around 344000.00 pesos. It is recommended to carry out this operation at the end of each accounting period, since in this way we will really know what the company has and future decisions in the business can be determined. This is determined by multiplying the number of physical units in process by its approved price, for example, if we have 100 fattening bulls, and each weighs 430 kgs, then we would have a total of 43,000 kgs of meat in process. If the market price of kg of meat is 8 pesos, then the balance of this cost center at the end of the accounting period should be around 344000.00 pesos. It is recommended to carry out this operation at the end of each accounting period, since in this way we will really know what the company has and future decisions in the business can be determined. then the balance of this cost center at the end of the accounting period should be around 344000.00 pesos. It is recommended to carry out this operation at the end of each accounting period, since in this way we will really know what the company has and future decisions in the business can be determined. then the balance of this cost center at the end of the accounting period should be around 344000.00 pesos. It is recommended to carry out this operation at the end of each accounting period, since in this way we will really know what the company has and future decisions in the business can be determined.
Adjustment to cost
Within cost center accounting, a process called Cost Adjustment is carried out, which aims to determine the real cost of each physical unit produced, either production or service. if when carrying out this accounting procedure the unit cost is negative, it means that we made a bad accounting or that the prices suddenly rose in the market and therefore, we will be “taking from where there is no”, since for example, if we have the mass livestock valued at 344000.00 pesos, because we calculate the value taking into account that the price of the kg is 8.0 pesos, and at the time of sale we sell it at 10.00 pesos, then we would have 86000.00 pesos difference, which would give us a unit cost of 1.25 pesos. It is recommended that the balance of each cost center be as real as possible to avoid future economic imbalances, positive or negative.
