What is a cost centre?

What is a cost centre?

• A. A section of a business, such as a department, to which costs can be allocated or charged
• B. A unit of production used for pricing
• C. A ledger category
• D. A type of fixed asset

Answer: (A)

A cost centre is a part of the business where costs are accumulated for control and reporting. It can be a department, function, or project, and the idea is to charge or allocate overheads and expenses to that area so managers can monitor spending, compare actual costs to budgets, and take action to control costs. The focus is on cost management, not generating revenue, which is why it’s different from a profit centre. It’s also distinct from a simple ledger category or from a fixed asset: a cost centre isn’t about asset ownership or accounting labeling alone, but about organizing costs by responsibility area. A unit of production used for pricing relates to cost per unit, which isn’t the same as grouping costs by area of responsibility.

A cost centre is a part of the business where costs are accumulated for control and reporting. It can be a department, function, or project, and the idea is to charge or allocate overheads and expenses to that area so managers can monitor spending, compare actual costs to budgets, and take action to control costs. The focus is on cost management, not generating revenue, which is why it’s different from a profit centre. It’s also distinct from a simple ledger category or from a fixed asset: a cost centre isn’t about asset ownership or accounting labeling alone, but about organizing costs by responsibility area. A unit of production used for pricing relates to cost per unit, which isn’t the same as grouping costs by area of responsibility.