what is a cost center

A cost center is a department or function within an organization that costs money to operate but does not directly add to profit. The main function of a cost center is to track actual expenses for comparison to the budget. Cost centers are used to monitor efficiency, improve employee confidence, prevent loss, and update processes to be more effective and save money). The manager of a cost center is responsible for keeping costs in line with the budget and does not bear any responsibility regarding revenue or investment decisions. The performance of a cost center is usually evaluated through the comparison of budgeted to actual costs. Examples of cost centers include accounting, human resources, IT, maintenance, research and development, and production departments. A cost center can be defined at a smaller level than a department, such as a particular job position, machine, or assembly line. The management focus in a cost center is usually on keeping expenditures down to a minimum level, possibly by using outsourcing, automation, or capping pay levels.