cost center

Examples of cost center in the following topics:

• Inadequate or incorrect internal accounting and dependence on third parties

  • All firms, whether young or mature, need cost accounting systems which can report costs and—as far as they are specifically attributable—revenues per cost unit, cost center, and department.
  • It is important that start-ups establish systems for unit cost accounting, cost center accounting, and breakeven analysis (cf.
  • If the competition is fierce, firms should also establish target costing to be able to undermine competitors by adjusting price policy.
  • Start-ups must therefore avoid this risk by establishing cost and profit accounting, and a breakeven analysis as quickly as possible.
  • For the start-up these defense activities incur transaction costs which arise in the preparation phase of a partnership and in the conclusion of cooperation contracts, and are added to later by transaction costs arising from controlling, and correcting errors.

• The Cost of Intermediaries

  • While organizations gain advantage by collaborating with intermediaries, there are costs involved to consider.
  • This service can be expensive due to the costs of transportation, and the necessity for holding inventory at various supply centers.
  • As a result, either or both parties will likely incur costs for this service.
  • As a result of the physical location, staffing, and inventory costs incurred by the storefronts themselves, either or both parties in the exchange are likely to incur costs.
  • This will also incur some cost.

• Outsourcing

  • Corporations may outsource their helpdesk or customer service functions to 3rd party call centers in foreign countries because these skilled laborers can do these jobs at a lesser cost than their equivalents in the domestic country.
  • Companies outsource to avoid certain types of costs.
  • This motivates companies to outsource for lower labor costs.
  • However, the company may or may not incur unexpected costs to train these overseas workers.
  • Lower regulatory costs are an addition to companies saving money when outsourcing.

• Quality costs

  • Prevention costs are the costs created from the effort to reduce poor quality.
  • Appraisal costs are a second major type of quality cost.
  • Internal failure costs are a third category of quality costs.
  • In the case of internal failure cost due to machine failures, FedEx, and other courier services cannot keep up with demand when a conveyor belt breaks down in the package distribution center.
  • External failure costs are the fourth major cost of quality.

• Demand-pull production system and quick setups to reduce lot sizes

  • In contrast to the push system, JIT espouses a "demand-pull" system that operates on the rule that work should flow to a work center only if that work center needs more work.If a work center is already occupied with work activity, the upstream work center should stop production until the downstream work center communicates a need for more material.The emphasis on maintaining high utilization is removed in a JIT environment.The focus of a JIT environment is on addressing the challenges that affect the overall effectiveness of the factory (setup time reduction, quality improvement, enhanced production techniques, waste elimination, etc. ) in meeting its strategic goals, rather than allowing excess inventory to cover up inefficiencies that reduce the factory's competitiveness.
  • Traditional production management philosophy promoted the notion that long production runs of the same item were the key to driving down unit costs.
  • Driving down setup costs and setup times are key to dramatically improving factory competitiveness in a JIT environment.
  • To keep unit production costs under control, 3M studied the setups on its coating machines.
  • The result was that 3M could maintain low unit costs on its coating machines while producing small lots of hundreds of products to meet market demand quickly.

• Maximizing building interiors

  • One of the more intriguing aspects of waste is that the costs it creates don't just add up, they tend to multiply.
  • 13% was used to neutralize the heat generated by internal office equipment (i.e. photocopiers, computers, printers, coffee makers, etc.). ( Parker, D., Fairey, P., and McIlaine, J., ‘Energy Efficient Office Building Design for a Hot and Humid Climate: Florida's New Energy Center')
  • For either a small or big business, these costs create significant money loss, but can they always be offset?
  • That being said, it may be feasible to negotiate new lease terms if envisioned improvements are seen to reduce operating costs.

• Supply Chain Management

  • Distribution network configuration: number, location and network missions of suppliers, production facilities, distribution centers, warehouses, cross-docks and customers.
  • Trade-offs in logistical activities: The above activities must be well coordinated in order to achieve the lowest total logistics cost.
  • Trade-offs may increase the total cost if only one of the activities is optimized.
  • For example, full truckload (FTL) rates are more economical on a cost per pallet basis than less than truckload (LTL) shipments.
  • If, however, a full truckload of a product is ordered to reduce transportation costs, there will be an increase in inventory holding costs, which may increase total logistics costs.

• Network Structure

  • Companies that outsource their help desk functions to call centers in foreign countries are creating a network structure through its contract.
  • For example, H&M is outsourcing its clothing to a network of 700 suppliers, more than two-thirds of which are based in low-cost Asian countries.
  • Not owning any factories, H&M can be more flexible than many other retailers in lowering its costs, which aligns with its low-cost strategy.

• Introduction to Building Better Buildings

  • Most astonishing, however, is the fact that this building actually cost less to construct than a conventional structure its size and that the efficiencies that make it so cost-effective came from 1983 technologies that paid for themselves within ten months.
  • Further north, in Minnesota, stands the Phillips Eco-Enterprise Center (PEEC), a $5.3 million commercial and industrial facility.
  • According to the Building Owners and Managers Association (BOMA), normal utility costs for a 5,946 m2 building add up to around 20% of its annual operating budget.

• Childcare

  • Most commonly, businesses will create agreements with childcare providers in the local area, covering or sharing the costs of childcare while the parents are at work.