Brief notes on the concept and advantages of Cost Centre

Cost centre is a location, person or item of equipment (or group of these) for which cost may be ascertained and used for the purpose of cost control. It may consist of either or a combination of the following:

Location: Office, factory, stores, etc.

Person: Foreman, salesman, customer, etc.

Equipment: Machine, car, truck, etc.

In other words, cost centre is a convenient unit of the organisation where cost accumulates. For this purpose entire organisation may be divided into cost centers in any manner as specified. Cost is accumulated for each of them and ultimately the aggregate is found to be the total cost for the centre.

Types of cost centre: Cost centre may be divided as mentioned below, but their selection depends on the nature, size and type of industry or organisation.

Advantages of cost centre

(i) Cost is ascertained by cost centre.

(ii) Helps cost control, providing opportunity for centre-wise comparison of cost at different points of time.

(iii) Helps to find out and show the trends in cost variances of each cost centre.

(iv) Facilitates cost control by checking and correcting undue, undesirable or unexpected movements in cost.