Cost Center

Cost Center is a section, a department, a function or item within the organization that consumes/incurs costs. In other words, it is a center with which costs may be ascertained.

For instance, if department A, B and C are the departments responsible of manufacturing products A, B and C are produced, respectively, then the respective departments are cost center.

Other cost center are such as accounting and finance department, stores department, and administration department

Example

Water Melony co ltd is a Small and Medium Enterprise that process juice products with different ingredients based on the vitamins used. The production manager is for the idea that for an efficient cost allocations and pricing of the final products, cost center are necessary based on vitamins used in each product. The following was the outcome and the corresponding costs consumed in each cost center

 

NB: That the cost center here is the products A, B, C and D. With this cost center A, B, C and D, it is possible to know the exact cost incurred for each product hence it becomes easy to price the respective products in the market.