What is a cost center?

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.