Question

Many organizations limit the number of expense (cost) centers.

List three reasons for wanting to limit cost centers.

List three ideas for eliminating or reducing the size of an existing cost center.

Answer 1

The organisations use to limit out the number of expense (or cost) centers bacause of having efficiency in the controlling the costs and compilation of the costs to reach-out to price.

The reasons for wanting to limit cost centers are:

a) The cost centers should be limit out as per the budget formed.

b) So that services to the cost centers are efficiently performed. Higher the number of cost center, the more difficult is to supply the costs to these centers.

c) The cost centers should be attached to the responsibility centers which are formed as per the functional services of the company.

The reasons for eliminating the size of an existing cost center are :

i) The unwanted or ineffective cost center should be eliminated so that the over-all expense of the company is reduced.

ii) The consolidation of the cost centers requires elimination of the existing cost or expense centers.

iii) Closing of a production line would require elimination of the existing cost center which are serving that production line only.

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