Cost Center

AAA

DEFINITION of 'Cost Center'

A department within an organization that does not directly add to profit, but which still costs an organization money to operate. Cost centers only contribute to a company's profitability indirectly, unlike a profit center which contributes to profitability directly through its actions. This type of department is likely to be one of the first targets for downsizing because, on the surface, it has a negative impact on profits.

INVESTOPEDIA EXPLAINS 'Cost Center'

Cost centers and profit centers are typically treated differently within an organization. Because a cost center doesn't produce a profit directly from its activities, managers of cost centers are responsible for keeping their costs in line or below budget. Examples of cost centers include marketing, human resources and research and development.

RELATED TERMS
  1. Reorganization

    A process designed to revive a financially troubled or bankrupt ...
  2. Research And Development - R&D

    Investigative activities that a business chooses to conduct with ...
  3. Downsize

    Reducing the size of a company by eliminating workers and/or ...
  4. Human Resources (HR)

    The company department charged with finding, screening, recruiting ...
  5. Restructuring

    A significant modification made to the debt, operations or structure ...
  6. Profit Center

    A branch or division of a company that is accounted for on a ...
Related Articles
  1. Professionals

    A Career Guide For Marketing Majors

    Do you have what it takes to work in this fast-paced field? This article will help you determine if marketing is for you.
  2. Investing

    R&D Spending And Profitability: What's The Link?

    Return on research capital (RORC), can help investors measure how much profit R&D spending actually generates.
  3. Retirement

    How To Lay Off Staff

    Firing employees isn't easy, but it is simple: be honest, be compassionate and be quick
  4. Active Trading

    Which Is Better: Dominance Or Innovation?

    Find out how to assess and evaluate both these values in the market and your portfolio.
  5. Investing

    The Ins and Outs Of In-Process R&D Expenses

    Are these charge-offs fair accounting or earnings manipulation? Learn more here.
  6. Economics

    What is Value Added?

    Value added is used to describe instances where a firm takes a product and adds a feature that gives customers a greater sense of value.
  7. Economics

    What is a Wholly Owned Subsidiary?

    A company whose common stock is 100% owned by another company, called the parent company.
  8. Economics

    What is the Breakeven Point?

    In general, when gains or revenue earned equals the money spent to earn the gains or revenue, you’ve hit the breakeven point.
  9. Investing

    What's a Run Rate?

    Run rate is a term used to denote annualized earnings extrapolated from a shorter time frame. Management uses the run rate to estimate future revenues.
  10. Professionals

    Financial Accounting

    Financial accounting is the process of gathering, recording, summarizing and reporting financial data relating to a business. The ultimate goal is to accurately report the financial picture and ...

You May Also Like

Hot Definitions
  1. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  2. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  3. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  4. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  5. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  6. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
Trading Center