Cost center, Management Theories

Cost Center:

A unit, whether a department, process, piece of equipment, or individual, within an organizations to which direct costs can be attributed.  In addition to straight costs, many cost centers are also assigned a portion of the organizations fixed costs, or over- head. A factory, for example, is normally considered a cost center. Managers of cost centers are usually responsible for optimizing the dissimilarity among standard costs (that is, the direct costs and overhead assigned to the cost center by management) and actual costs. Because of this, cost centers are sometimes called responsibility centers. The key to the efficient use of cost centers is an accurate assessment and assignment of direct costs and overhead.  In many cases, cost allowance is a matter of tradition rather than careful analysis. This can lead to a distorted perception of the profitability of several cost centers.

 

Posted Date: 10/15/2012 8:45:10 AM | Location : United States







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