How to Create a Cost Center?

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How to Create a Cost Center?
pravin madnaik, Accountant, India

I need to set up a cost center in our company. How do I go about it?
In other words, how does one create a cost center... Please share some experiences and best practices? Thank you.

Manufacturing Companies Already Have Cost Center
Bibi Mussarat, Student (University), Afghanistan
Hello, according to Cost Accounting, a "Cost Center" is responsible for generation of cost within a company. The best example for a cost center in your company is your production unit or department.

No Automatic Cost Centers
Jaap de Jonge, Editor, Netherlands
@Bibi Mussarat: cost centers are evaluated on the cost efficiency with which they use a mix of inputs (labor, materials, and outside services) to produce or generate the required outputs. So they are NOT judged on how much revenue they make or how much profit they generate.
Indeed a production facility or department typically has those characteristics, but it is still a management decision to treat it as such (in accounting terms).
For example if we have a firm with 3 factories, it could be a management decision to treat them as one cost center or as 3 cost centers.
So I believe the first part of the answer to the question how cost centers are created is that they are created by a management decision.
Who can give some further typical implementation steps for establishing a cost center?



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