What is the purpose of a cost centre?

What is the purpose of a cost centre?

• A. To allocate or charge costs to the department
• B. To determine the sales strategy
• C. To forecast cash flow
• D. To audit external suppliers

Answer: (A)

A cost centre is a part of the organisation where costs are collected and monitored. Its purpose is to allocate or charge costs to that department or unit so managers can see what their activities cost and take responsibility for those costs. This supports budgeting, cost control, and performance evaluation, helping to identify variances and drive efficiency. The other functions—shaping the sales strategy, forecasting cash flow, and auditing external suppliers—relate to different areas of planning and operations and are not about internal cost allocation and responsibility.

A cost centre is a part of the organisation where costs are collected and monitored. Its purpose is to allocate or charge costs to that department or unit so managers can see what their activities cost and take responsibility for those costs. This supports budgeting, cost control, and performance evaluation, helping to identify variances and drive efficiency. The other functions—shaping the sales strategy, forecasting cash flow, and auditing external suppliers—relate to different areas of planning and operations and are not about internal cost allocation and responsibility.