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.

• Accounting for R&D Activity

  • In general, research and development (R&D) activities are conducted by specialized units or centers belonging to a company, or can be outsourced to contract research organizations, universities, or state agencies .
  • Due to the difficulty of determining the costs applicable to future benefits, many companies expensed all such costs as incurred.
  • Administrative costs are non-manufacturing costs that include the costs of top administrative functions and various staff departments such as accounting, data processing, and personnel.
  • Executive salaries, clerical salaries, office expenses, office rent, donations, research and development costs, and legal costs are also administrative costs.
  • As with selling costs, all organizations have administrative costs.

• 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.

• Average and Marginal Cost

  • Marginal cost is the change in total cost when another unit is produced; average cost is the total cost divided by the number of goods produced.
  • Marginal cost is not related to fixed costs.
  • When the average cost declines, the marginal cost is less than the average cost.
  • When the average cost increases, the marginal cost is greater than the average cost.
  • This graph is a cost curve that shows the average total cost, marginal cost, and marginal revenue.

• Flow of Inventory Costs

  • Its finished goods inventory consists of all the filled and labeled cans of food in its warehouse that it has manufactured and wishes to sell to food distributors (wholesalers), to grocery stores (retailers), and even perhaps to consumers through arrangements like factory stores and outlet centers.
  • Purchase date: 10/1/12 -- 10 units at a cost of USD 5
  • Purchase date: 10/5/12 -- 5 units at a cost of USD 6
  • Purchase date: 10/1/12 -- 10 units at a cost of USD 5
  • Purchase date: 10/5/12 -- 5 units at a cost of USD 6

• 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.

• Types of Costs

  • In economics, the total cost (TC) is the total economic cost of production.
  • It consists of variable costs and fixed costs.
  • Total cost is the total opportunity cost of each factor of production as part of its fixed or variable costs .
  • Variable costs are also the sum of marginal costs over all of the units produced (referred to as normal costs).
  • Economic cost is the sum of all the variable and fixed costs (also called accounting cost) plus opportunity costs.