Plain definition
A cost centre is a department, function, location, or activity for which costs are collected and monitored. It need not earn revenue and is not automatically responsible for company-wide profit.
Illustrative example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
The maintenance department has a monthly budget. Its manager controls overtime and external repair calls, but does not set sales price or factory volume. Reviewing the centre against controllable costs lets the operations director ask about repair demand without blaming maintenance for a fall in product revenue.
Why it matters
A cost centre creates accountability for resources, not a licence to reduce spending regardless of service consequences.
Practical consequence
Define the manager’s controllable costs and service measures, reconcile centre spending to the ledger, and review variances with the operational cause and corrective action.