A1 Cost Centres and Departmental Overheads
A cost centre is any area of the business that incurs costs. Each cost centre will be given a code and business costs will be allocated to cost centres. For example, when an invoice arrives, it will be coded with the cost centre that spent the money. This allows managers and accountants to track spending of individual cost centres against budgets. Managers of cost centres can also be given budgets that they can use as targets or guidelines for spending.
Departmental overheads are the allocation of overhead costs such as rent and electricity to individual departments. When an organisation gets their electricity bill, they don’t get individual ones for each department and it is difficult to work out exactly how much electricity each department has used. An accountant wil make an estimation on how much electricity each department uses and allocates the cost accordingly.
For example, in a burger bar, an accountant may feel that the kitchen uses 60% of electricity, the dining area 30% and the office 10%
