Cost Center

What is Cost Center?

A cost center, cost center, or expense center is a group of people or departments, or units of the company that incurs a direct cost but doesn’t generate revenue or profit. The aim of identifying cost centers is to help management utilize resources, and support contributes to the overall goal of making revenue. Example of cost center includes accounting, human resources, and other administrative functions.

Types Of Cost Centers

There are different types of cost centers, and they can be classified based on relation to the company’s goals.

• Product Cost Centers: It supports a group of specific services or products.
• Functional Cost Centers: These support specific functions in the organization, like human resources.
• Natural Resources Cost Centers: It supports associating with natural resources used by the company like water.

Management often uses cost centers to trace spending areas where cuts can be made. If a cost center consistently spends more than its allocated budget, it’s going to indicate that the department by informing cost too high.

Also, See: Cost Per Hire