Cost Center
A department that incurs costs but does not directly generate revenue, evaluated on expense control.
What is Cost Center?
A cost center is a department or unit within a business that incurs costs but does not directly generate revenue. Unlike profit centers, cost centers are evaluated on their ability to control expenses within their approved budgets. Common examples include HR, IT, legal, and accounting departments that support revenue-generating units.
Example
Example
A company's HR department is a cost center — it does not sell products but incurs salaries and software costs. Management evaluates it by comparing actual spending against its approved budget and headcount-per-employee metrics.