Cost Centre

A cost centre is an internal unit within a business - a department, project type, geographic location, or team - to which costs are assigned for tracking and reporting. It does not directly generate revenue, but recording expenditure against cost centres enables a business to understand where its money is being spent at a level of detail that a single profit and loss statement does not provide. A construction business might use cost centres for installation work, service and maintenance, and plant hire. A promotional merchandise distributor might separate decoration costs, fulfilment costs, and account management costs.

How Cost Centres Work in Practice

Costs are allocated to a cost centre at the point of recording, using a cost centre code. Labour, materials, sub-contractor invoices, and overhead costs can each be assigned to the relevant centre. Once coded, spending can be reported by cost centre - showing the total cost and, where revenue is allocated alongside it, the gross contribution of each area. For trades and field service businesses, cost centres commonly align with contract type or service category. This makes it straightforward to compare the profitability of, say, new installation work against ongoing service contracts within the same company.

Cost Centres and Job Costing

Cost centres and job costing operate at different levels. Job costing tracks the revenue and cost of a single project or job in detail. A cost centre sits above individual jobs, grouping similar types of work into categories for management reporting. A roofing contractor might have cost centres for new-build contracts, repair and maintenance, and emergency call-outs - each containing many individual jobs with their own cost records. The distinction matters when reviewing overall business performance: job costing tells you how a specific job performed, while cost centres tell you how a type of work performs across the business.