Cost Center

A cost center is a sub-unit within a company that incurs costs. Cost centers are used in managerial accounting to track and control expenses. Companies often have multiple cost centers, each with its own allocated budget. Cost centers can be grouped by department or function, such as production, sales, marketing, or customer service.

There are two types of cost centers:

1. Direct cost centers incur costs that can be directly attributed to the production of goods or services. Examples of direct costs include materials, labor, and overhead.

2. Indirect cost centers do not directly incur costs related to the production of goods or services. Instead, indirect cost centers support the company as a whole and include expenses such as rent, utilities, and administrative salaries.