[Q.31] What is a cost center?

A cost center is often a department within a company. The manager and employees of a cost center are responsible for its costs but are not responsible for revenues or investment decisions.

A manufacturer’s cost centers include each of its production departments as well as the manufacturing service departments such as the maintenance department or quality control department. Other examples of cost centers include the human resource department, the IT department, the accounting department, and so on.

Cost centers are not limited to departments. There might be several cost centers within a department. For example, each assembly line could be a cost center. Even a special machine could be a cost center.

Cost centers are usually associated with the topic of decentralization, responsibility accounting, and planning and control.

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