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What is a Cost Centre in Costing?

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A cost centre is a department or function within an organisation for which costs are incurred. Cost centres are typically grouped together by function, such as production, marketing or administration.

In cost accounting, a cost centre is any department or function within an organisation for which costs are incurred. These centres are typically grouped by function, such as production, marketing or administration.

Purpose of a Cost Centre

A cost centre can also be responsible for revenue generation, but this is not its primary purpose. The main purpose of cost centres is to provide information that can be used for decision-making and cost control.

A cost centre is often used with profit and investment centres. Profit centres are responsible for generating revenue, while investment centres are responsible for incurring costs.

Cost centres can be either fixed or variable. Fixed cost centres have costs that do not change with changes in activity levels. For example, the rent for a factory is a fixed cost. Variable cost centres are those that have costs that do change with changes in activity levels. For example, the cost of electricity for a factory is a variable cost.

The concept of cost centres is important in management accounting and financial accounting. In management accounting, cost centres are used to help managers make decisions about where to allocate resources. In financial accounting, cost centres are used to help prepare financial statements.