Many accountants have many doubts in cost centre. Cost Centre can be easily defined as the branch of Company or department of Company. Because Company expends different expenses relating to different department. Company can make every branch as cost centre and charge the expenses on specific cost centre.
There is also another benefit is that Company can compare profit of different cost centre and also compare the different expenses on different cost centre. Even a very small businessman who have only two machine and his work is to produce something , then he can give the two machine as two cost centre , Ist machine becomes first cost centre and second machine becomes second cost centre .
I think in corporate sector, making of Cost Centre is very effective way for recording expenses in divisional form. Whole organization can be divided into finance, human resource , marketing and research and development department.
Every department can also create sub cost centre 1, 2 , 3 or more than 3 and if any expenses has done one specific cost centre , then expenses will be debited also in that cost centre . In End of financial year, we can calculate what expenses of different cost centre are and sub cost centre and it will be helpful for detail study of profit and loss account of company.