Cost Centre vs Cost Unit
Cost center and cost unit are two concepts that sound similar, and are thus, very confusing to those outside an organization. These are terms that are applied mostly in terms of a business environment where cost and profit are involved. What makes it more confusing is the similarity of cost unit with unit cost, which is the cost per unit item manufactured in the company. However, there are many differences between these two concepts that will be highlighted in this article.
Cost center is one or more units in a business organization that add to the overall cost of the organization, and also add to profits of the organization, though these profits are hard to calculate and quantify. For example, many companies have a separate research and development center that incurs lots of costs in its endeavor to come up with new products for the company, though it is difficult to say how much profit it generates for the company. The same can be said about the marketing department of a company that spends a lot on promoting the company and adds to the overall cost of the company. But, no company can say with certainty how much profit it has been able to make because of the efforts of its marketing department.
Cost unit, on the other hand is a unit in finance or administration departments of a company. This is the unit that is involved in tracking costs incurred in various departments of the company. Cost unit is actually making estimates and suggests measures to save on costs of various projects and products inside a company. This is a very important part of a company as it lets the company know about costs incurred on various activities in comparison to profits generated by such activities.
What is the difference between Cost Centre and Cost Unit?
• Cost center or centers add to overall cost structure of a company though they also indirectly lead to profits. These profits are hard to calculate.
• Examples of cost center are R&D, marketing, advertisement department etc.
• Cost unit is a specialized unit in a company that tracks costs incurred by various departments as also estimates and cost saving measures for different departments.