The Fast Close Toolkit

CHAPTER TENCost Centers

INTRODUCTION: A COST CENTER often represents a department or key function within a company. The manager and employees of a cost center are responsible for costs incurred but are not responsible for revenues or investment decisions that impact the company. As an example, a manufacturer's cost centers include each of its production departments as well as the manufacturing service departments such as the maintenance department or quality control department. Other examples of cost centers include the human resource department, the information technology (IT) department, the accounting department, and so on.

Cost centers are usually not limited to departments. There might be several cost centers within a department. For example, each assembly line within a manufacturing company could be assigned a cost center. Even a special production, new product, packaging machine, or media events could have a cost center. Cost centers are usually associated with the topic of decentralization, responsibility accounting, and planning and control.

Many companies have established business rules to initiate a cost center and require that each cost center has an annual budget and monthly forecast. The business rules will mandate controller's approval for each new cost center and that there is a headcount requirement of 5 to 10 people with project annual spending of $100,000.00 to $500,000.00. These requirements will be dependent upon the size of the company.

As an additional ...