Cost Centers

Cost Centers

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Cost Centers : Companies may choose to classify business units as cost centers, profit centers, or investment centers.

Cost centers are divisions that add to the cost of the organization, but only indirectly add to the profit of the company. Typical examples include Research and Development, Marketing and Customer service.

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Cost Centers create incentives for managers to underfund their units in order to benefit themselves, and this underfunding may result in adverse consequences for the company as a whole (for example, reduced sales because of bad customer service experiences).

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