Cost centres? (1 Viewer)

[SGSII]

Hi guys
Could someone please explain to me what a cost centre is?
Thanks

 

[obliviousninja]

area of business that costs be attributed to.

 

[Drifting95]

Areas of a business that don't generate specific revenue from the completion of the tasks.

 

[Pifty]

Pretty much what the above had said, but in a bit more depth, a cost centre is a division of a business that does not contribute directly to revenue but is a core component or is even essential to its success.

A typical example of a cost centre is a customer helpline and service call centre. Almost any large business that requires this function will outsource it overseas to reduce costs.

 

[rednellav]

Something that functions within the businesses and has purpose other than directly stimulating and generating profits. They're normally used to increase profits (through an increase in revenue) indirectly through attaining higher customer satisfaction, conducting market research which can then be used to create a more accurately customised marketing-plan (through a more specific marketing mix if the company expands internationally), etc.

A help-desk for example. It doesn't contribute to profits per se, but it may help customers troubleshoot issues with products/services and yield a higher degree of customer satisfaction. This will result in a higher degree of loyal and repeat customers, thus increasing overall net profits as marketing can focus on obtaining new customers rather than retaining its current customer-base. This would improve its working capital, would enable the business to issue more divide... you get the idea.

 

[bhsrepresent]

^^ I though a cost centre is a department within the business established specifically to administer costs and determine strategies to reduce them within each specific function, no?

 

[SGSII]

Thank you!

 

[Sammer]

^^ I though a cost centre is a department within the business established specifically to administer costs and determine strategies to reduce them within each specific function, no?

This ^^

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[Pifty]

^^ I though a cost centre is a department within the business established specifically to administer costs and determine strategies to reduce them within each specific function, no?

I had this same problem, you should refer to your textbook or this http://en.wikipedia.org/wiki/Cost_centre_(business) for further clarification. Cost centres are commonly involved in questions involving profitability management and in that regard cost centres arent used to reduce costs, rather, a business will undertake the identification of cost centres within their functions. By identifying and subsequently attributing costs to cost centres, management can then decide which cost centres are operating at too high an expense and make changes to reduce costs (outsourcing, downsizing, etc..).

 

[rednellav]

I had this same problem, you should refer to your textbook or this http://en.wikipedia.org/wiki/Cost_centre_(business) for further clarification. Cost centres are commonly involved in questions involving profitability management and in that regard cost centres arent used to reduce costs, rather, a business will undertake the identification of cost centres within their functions. By identifying and subsequently attributing costs to cost centres, management can then decide which cost centres are operating at too high an expense and make changes to reduce costs (outsourcing, downsizing, etc..).

This. In terms of profitability management, financial managers will gather data in relation to what functions of the business are eating up too much of its precious funding (and thus eating into net profits) and since cost-centres aren't fundamental to the profitability or direct growth of the business, they can attribute the high costs of the business' activities to these cost-centres and then remedy the issue through downsizing, outsourcing the total cost-centre function either domestically or internationally (normally internally cause it's cheaper) or removing the cost-centre completely from the business (which would be a breach of its corporate social responsibility - making jobs redundant and all). This is a form of expense minimisation.

Business is all about those chain-effects nomsayn.