Cost Centre allows Departments to organize and group their accounts to reflect their own departmental activities and set up. For example, a Department may have Cost Centre’s for administration, laboratory managers, conferences, canteens or specific courses. Expenditure (and income) is then allocated to the appropriate Cost Centre. This enables Departments to manually set budgets for each activity and monitor its performance.
- Cost centre are logically related accounts that are grouped together in order to collect and simplify cost information.
- Cost centre represent resources (and expenses) applicable to the entire organization.
- Cost centre might include facilities and properties, insurance other than professional liability, non-payroll taxes, and licenses, other professional fees (e.g. auditing services, legal services and so forth) and charity services.
- Cost centre frequently represents the services that are indirectly used in the production of organization’s marketable product and services
- In some charitable organizations, cost centre may includes administrative services.
- Generally, the administration costs of charities are understood to be costs that are not directly incurred by charities in delivering charitable services.
- The relationship between administrative costs and total costs of running the charity is often expressed a percentage of the total costs of the charity.
- Cost centers have responsibility for controlling costs.
- Cost centers can plan future costs to have a basis for comparison with actual costs. This provides a means of measuring the cost center’s performance in controlling costs
- All cost centers must appear somewhere in the controlling area’s “standard hierarchy”
- If business areas are active in FI, each cost center must be assigned a business area
- All work centers in PP must be tied to a cost center, for this is where activities and prices are planned
- Statistical key figures can be posted to cost centers; these are used in reporting and allocations
- Cost centers can be planned and/or budgeted.
- Budgeting by cost center allows you to analyze expenditures where they happen. Departments, projects, client accounts and pieces of equipment represent typical cost centers.
- Cost center in accounting makes comparisons of budget goals to actual expenditures simple, amounts from paid invoices get charged to the appropriate account and posted in reports that show you monthly expenses versus the allocated monthly budget as well as year-to-date totals