Definition of 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 directly responsible for revenues or investment decisions.
Examples of Cost Centers
A manufacturer's cost centers will often include:
- Each of its production departments
- Each of the service departments or support departments within a production facility, such as the maintenance department and quality control department
- A company's general, selling and administrative (SG&A) departments such as the company's human resource department, sales and marketing departments, IT department, accounting department, etc.
It is also possible for a company to have several cost centers within one department. For example, each assembly line could be a separate cost center within one production department. Even a special machine could be a separate cost center.
Cost centers are usually associated with the topics of decentralization, responsibility accounting, and planning and control.
