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What is a cost center?

Author:
Harold Averkamp, CPA, MBA

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.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

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