What is a cost center?

• A cost center is an organizational sub-unit that incurs costs
• Its purpose is to enable a transparent overview of costs by organizational and functional criteria
• A cost center is defined having either responsibilities, spatial areas or other more accounting-technical aspects in mind
• E.g. in many companies a cost center can be viewed as an area of responsibility where costs are incurred
• A cost center is assigned to a controlling area
• Mapping costs to cost centers lets managers see where costs are incurred in the organization
• Cost centers are created with TC KS01

Cost center and work center relationship

• Work centers from more than one plant can be assigned to the same cost center
• Within a given period of time a work center can only be assigned to a single cost center
• All work centers have to be assigned to a cost center
• Operations conducted at work centers contribute to the costs incurred by an organization

Activity types evaluated in a cost center

• A cost center evaluates activities
• A cost center evaluates only those activity types that are defined for the cost center’s controlling area
• Activity types are defined in the controlling area and they are used for deriving the internal cost/price for activities performed internally
• A work center can only use those activities that have been defined in the work center’s cost center

Linnart Felkl

Data scientist focusing on simulation, optimization and modeling in R, SQL, VBA and Python