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The use of job costing as a tool for the pricing and cost control decisions in the printing industry: the case of Société de Presse et d'Editions (SOPECAM)

par Christian Kuiate Sobngwi
University of Buea - Bachelor of Science 2003

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3. Cost Centre

Garrison and Noreen (2003) define a cost centre as a business segment whose manager has control over costs but not revenue and investment funds. This definition relates to those of revenue centre, profit centre and investment centre.

A revenue centre is a segment of an organisation, mainly a decentralised one whose manager is responsible of revenue generation.

A profit centre is defined as a business segment whose manager has control over costs, revenues, but he does not have control over investment funds.

Finally, an investment centre is the segment of an organisation whose manager has control over costs, revenues and investment on operating assets.

All these terms are grouped under the expression Responsibility centres, and these centres are of great importance to the cost accounting department of the an organisation because they are used in the process of decentralising and delegating authority in an organisation and as such they are a good yardstick for allocating and assigning costs.

4. Cost allocation and apportionment

Lucey (1993) defines cost allocation as that part of cost attribution which charges a specific cost to a cost centre or cost unit. The purpose of allocating costs to cost units or cost centres is to determine with accuracy the amount of costs used to perform a particular activity; this is done with the goal of easing the unit cost determination. Cost allocation is one of the methods used to assign costs to costs objects, the others are direct tracing and driver tracing.

Direct tracing is quite the most accurate method of cost assignment; it relies on physical observable causal relationships.

The next best method in terms of accuracy is diver tracing; this method relies on causal factors called drivers to assign costs to costs objects, the precision of the method depends on the casual relationship described by the driver. But this method is very costly because it requires the identification of drivers and the assessment of the quality of the causal relationship.

Allocation has the advantage of being simple and of having a low cost of implementation.

Graphically, the three methods could be summarised as such:

Figure 2-1Cost assignment methods


Through physical observation

Convenience asumed linkage

Using activity drivers


Driver Tracing

Direct tracing


Source: Hansen, D.R., &Mowen, M.M.,(1997), Management Accounting (4th edition), p 32, South-western College Publishing, Cincinnati, Ohio

5. Cost drivers

Costs are always incurred when pursuing certain goals. These goals must be subject to some factors that influence the level of cost incurred. Such factors are called cost drivers. As such Drury10(*) (1992) defines a cost driver as the events or forces that are the significant determinants of the cost of the activities. This is an important aspect of Activity-based costing, which is a generic term used to describe costing methods that assume that costs are subject to changes in their level due to some forces or events as stated above.

Cost drivers according to the nature of the cost being studied, we may have costs that vary with the level of output or some that vary with the level of inputs used such as the number of machine-hours or labour-hours.

These variations in the level of costs lead us to the desire to study their characteristics such that we may predict their behaviour with reasonable certainty.

* 10 Drury, C. (1992) Management and Cost Accounting (1992), London.

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