What is cost center management?
Emma Miller
Updated on January 02, 2026
Cost center managers are fiscally responsible for the transactions charged to the center. Managers are responsible for developing the annual cost center budget of revenues and expenses for the upcoming year in conjunction with their vice president. Area vice presidents oversee their budgets and those of their managers.
What are cost Centres and explain its types?
There are two main types of cost centres: Production cost centres, where the products are manufactured or processed. Example of this is an assembly area. Service cost centres, where services are provided to other cost centres. Example of this is the personnel department or the canteen.
What do you know about the cost centre?
A cost centre is defined as a function or department within a company which is not directly going to generate revenues and profits to the company but is still incurring expenses to the company for its operations. It is very much, unlike a profit centre, whose actions will directly result in the profits to the company.
What is the purpose of cost center?
The main function of a cost center is to track expenses. The manager of a cost center is only responsible for keeping costs in line with budget and does not bear any responsibility regarding revenue or investment decisions. Expense segmentation into cost centers allows for greater control and analysis of total costs.
What is the function of cost center?
A cost center is a function within an organization that does not directly add to profit but still costs money to operate, such as the accounting, HR, or IT departments. The main use of a cost center is to track actual expenses for comparison to budget.
What are the advantages of cost accounting What is a cost center?
ADVERTISEMENTS: (i) Cost is ascertained by cost centre. (ii) Helps cost control, providing opportunity for centre-wise comparison of cost at different points of time. (iii) Helps to find out and show the trends in cost variances of each cost centre.
What is the basic objective of cost accounting?
The main objective of cost accounting is to ascertain the cost of goods and services. The expenses that are incurred while producing goods or rendering services are called costs.
What is the difference between revenue center and profit center?
A revenue center is the part of organisation in which organisation gets revenue from sales of products or providing of services. A profit center is the part of organisation in which organisation identify its net profit. We know that we can get net profit only comparing revenue with expenses.
What is a profit center examples?
A profit center is a section of a company treated as a separate business. Examples of typical profit centers are a store, a sales organization and a consulting organization whose profitability can be measured. Peter Drucker originally coined the term profit center around 1945.
What are the advantages of cost accounting to management?
Advantages of Cost Accounting – To Management, Workers, Outside Agencies and Creditors
- Helps in Cost Control:
- Reveals Profitable and Unprofitable Activities:
- Helps in Decision Making:
- Aids in Formulating Policies:
- Guides in Fixing Selling Prices:
- Helps in Inventory Control:
- Reveals Idle Capacity:
What is cost center and its types?
What are different types of cost unit?
Types of Cost Units
| Brick Industries | Cost unit per 1000 bricks |
|---|---|
| Transport Companies | Cost unit per kilometer |
| Steel Companies | Cost unit per ton |
| Water Supply | Cost unit per 1,000 liters |
| Furniture Industries | Cost unit per number |
What does cost centre mean in cost accounting?
A cost accountant has to ascertain cost by cost centre or cost unit or by both. According to the Chartered Institute of Management Accountants, London, cost centre means, “a production or service location, function, activity or item of equipment whose costs may be attributed to cost units”.
Who is the manager of a cost center?
A cost center is a business unit that is only responsible for the costs that it incurs. The manager of a cost center is not responsible for revenue generation or asset usage.
How is the performance of a cost Center evaluated?
The performance of a cost center is usually evaluated through the comparison of budgeted to actual costs. The costs incurred by a cost center may be aggregated into a cost pool and allocated to other business units, if the cost center performs services for the other business units.
Which is an example of a cost center?
In fact, a department may have multiple cost centers within it. A cost center may be any defined group in which management finds benefit in segregating the cost of the group. For example, a cost center may include all expenses related to a specific quality improvement project, grant award, or job position.
