What Is an Expense Center?

Expense centers are also called cost centers. The department or unit that collects, controls, allocates, calculates, and evaluates the expenses incurred under the responsibility accounting system in management accounting. It is a part of the responsibility center. From the perspective of the management organization, it can be a department, a unit or a business area, or a staff member. No matter what kind of expense or level of expense center, it is responsible for the controllable expenses. Controlling controllable expenses is a complete process, including ex-ante, in-event control, and post-event control. The expenses of an enterprise are categorized by an expense center, which can evaluate and assess its occurrence. It usually does not involve the income and investment of the enterprise. The division of controllable expenses and uncontrollable expenses is a prerequisite for the performance evaluation of the expense center. Each expense center is responsible for controlling and assessing its liability costs, and only has the reporting obligation for uncontrollable costs. Auxiliary production departments and management departments other than the basic production unit, although they do not directly produce the main products of the company, their activities will have an impact on the production costs of the products. Each of these departments also has its own controllable expenses, and usually should also establish expenses Or cost center. ^[1]

Cost center

There are two types of expense centers: fixed expenses and random expenses.

The person responsible for the management of the expense center is responsible for the relevant period expenses involved in the unit.

The person responsible for the management of the expense center has decision-making authority, and its decisions can affect the main factors of the unit's period expenses, including the details of various management expenses and financial expenses.

The person responsible for management takes management expenses and financial expenses as decision criteria.

Applicable to those units whose products cannot be measured by financial indicators, or those units that have no close relationship between the resources consumed and the results achieved, such as

Summary

Enterprise cost is the value sacrifice incurred by an enterprise in order to achieve its business objectives. The components of corporate costs include

The control objectives are detailed indicators of management expenses and financial expenses in a specific financial period, and the results are evaluated accordingly.