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What is cost center?

Cost center is a term given to a division or a unit inside a company which is responsible for the incurred cost but does not add profit to it directly. The profitability is gained by a company by direct business actions.

Types of cost center

There are mainly 2 categories under cost center.

  • Service cost center
  • Production cost center

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What are the benefits of cost center?

Some of the benefits regarding cost center are:

  • It helps in reduction of losses and expenditures
  • It aids in increasing the efficiency of a company
  • It helps in improving the functioning of a company by monitoring the overall business processes

State few examples of cost center

Some of the essential examples of cost center are:

  • Research and development
  • IT department
  • Accounting department
  • Maintenance department
  • Human resources department

We have provided more of such examples in our cost center assignment help manual.

What are the functions of cost center?

There are mainly 3 functions of cost center. 2 among those are:

  • Resource allocation
  • Function specific cost

Disadvantages related to cost center

Few of the disadvantages related to cost center are as follows:

  • As profit does not stands as a direct factor, performance judgement of these departments are based on cost generation
  • Tracking efficiency of these divisions is difficult
  • Measurement of efficiency is not based on monetary platform, so productivity evaluation is arduous

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