What is the main purpose of a cost center?

The main purpose of a cost center is to collect costs related to a functional area within an organization. Cost centers are essential components of managerial accounting and financial reporting, as they allow organizations to track expenses associated with specific departments or activities. By accumulating costs within a defined area, businesses can analyze and manage their expenditures more effectively. This enables better budgeting, performance measurement, and decision-making processes as managers can identify areas where costs can be controlled or reduced for improved efficiency.

While recording revenue, storing material master data, and managing sales pricing are important aspects of business operations, they do not relate directly to the primary function of a cost center. A cost center specifically focuses on costs incurred rather than revenue generation, inventory data management, or pricing strategies.