Cost unit is defined as:

Cost unit is defined as:

• A. The total costs incurred by a department.
• B. A unit of product or service in relation to which costs may be ascertained.
• C. A function or location for which costs are tracked.
• D. A method of allocating overhead.

Answer: (B)

The idea being tested is how we measure costs against a specific unit of output. A cost unit is a unit of product or service in relation to which costs may be ascertained. This provides a consistent basis for calculating cost per unit and for comparing across products or services. Why this fits: it describes exactly what cost per unit is built from—costs traced to each unit of output or service. It lets you determine, for example, how much each loaf, each taxi ride, or each widget costs to produce by dividing total costs by the number of units. What the other options refer to: the total costs incurred by a department relate to a cost centre’s total costs, not per unit. a function or location for which costs are tracked describes a cost centre, not a cost unit. a method of allocating overhead is about how fixed or indirect costs are assigned, rather than identifying the unit against which costs are measured.

The idea being tested is how we measure costs against a specific unit of output. A cost unit is a unit of product or service in relation to which costs may be ascertained. This provides a consistent basis for calculating cost per unit and for comparing across products or services.

Why this fits: it describes exactly what cost per unit is built from—costs traced to each unit of output or service. It lets you determine, for example, how much each loaf, each taxi ride, or each widget costs to produce by dividing total costs by the number of units.

What the other options refer to: the total costs incurred by a department relate to a cost centre’s total costs, not per unit. a function or location for which costs are tracked describes a cost centre, not a cost unit. a method of allocating overhead is about how fixed or indirect costs are assigned, rather than identifying the unit against which costs are measured.