-This question was submitted by a user and answered by a volunteer of our choice.
I think firstly you should have a glance over the concept of cost centre and then try and apply the concept while interpreting below given example.
Meaning of a Cost Centre
It’s a smaller part of a larger organization wherein the manager of such a unit is responsible to keep costs in line or within the budget. Unlike profit centres, the managers of the cost centre do not have any direct responsibility for the profits of the organization.
Few Examples of Cost Centre
In the case of Walmart, its corporate office will have an accounting department, marketing department, information technology department. These departments do not generate any revenue.
Take up the Accounting department- one can not argue that the accounting dept. is responsible for generating revenue. It will have only one responsibility to incur costs within the specified budget.
In the case of XYZ Ltd., the marketing dept, finance dept and production dept are the primary cost centres but the sales executives Mr A, B and C are also considered as cost centres. This will help the organization track its performance.
In the case of ABC university the reading hall, computer lab and careers i.e its HR dept. are the cost centres as these departments only incur the cost and help in providing better educational services but the manager or an in charge of these departments are not engaged directly with generating revenue.
Here in the case of Uber Inc. the human resources department, project managers and customer service department are cost centres as these do not generate revenue directly.
We will analyse the HR department-It does not generate revenue as it’s the administrative department but it’s an essential part of an organisation. It helps in storing data of the employees, manages their complaints, hiring, promoting and terminating employees of the organisation.
The project managers are responsible to plan a project they are also responsible to prepare its budget and tracking its progress. They as such do not add up to the profit but are important to complete the project.