What is a Support Cost Centre?
A support cost centre, also known as a service cost centre, is a division or department within an organization that provides services or support to other departments rather than directly contributing to manufacturing or the creation of the primary product or service. These centres are crucial for operational efficiency and may include departments such as IT, human resources, maintenance, and facilities management. Although they do not generate direct revenue, their functions are essential for the smooth running of the organization.
Examples of Support Cost Centres
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Information Technology (IT) Department: Provides technical support, maintains hardware and software, and ensures the overall technology infrastructure is functional and secure.
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Human Resources (HR) Department: Manages recruitment, payroll, employee relations, benefits, and training programs, contributing to workforce efficiency and satisfaction.
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Maintenance Department: Responsible for the upkeep and repair of equipment and facilities, ensuring that operational environments are safe and functional.
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Facilities Management: Manages the physical workplace, including offices, common areas, and external premises, ensuring they meet health and safety regulations and are aesthetically pleasing.
Frequently Asked Questions (FAQs)
What is the primary function of a support cost centre?
The primary function of a support cost centre is to provide essential services that support the operational activities of other departments within the organization. This enhances overall efficiency and operational effectiveness.
Why are support cost centres necessary in organizations?
Support cost centres are necessary to ensure that core functions can focus on their primary activities without being bogged down by ancillary tasks such as IT issues, maintenance, or administrative tasks.
How are the costs of support cost centres allocated?
The costs of support cost centres are typically allocated to production or revenue-generating departments based on specific allocation bases such as square footage, headcount, or IT usage hours.
Can a support cost centre generate revenue?
Generally, support cost centres do not generate direct revenue. However, they enable other departments to function efficiently, indirectly contributing to the organization’s profitability.
What are the challenges in managing support cost centres?
Challenges include accurate cost allocation, ensuring service quality, managing budget constraints, and aligning the support services with organizational goals.
Related Terms
Service Cost Centre
A service cost centre is another term for a support cost centre. It focuses on providing services internally within an organization rather than contributing directly to production.
Cost Allocation
Cost allocation is the process of identifying, aggregating, and assigning costs to cost objects such as departments, products, or activities based on predefined criteria.
Overhead Costs
Overhead costs refer to ongoing expenses not directly tied to specific departments or products, such as rent, utilities, and administrative salaries, which need to be allocated appropriately.
Online Resources
- Investopedia: Cost Center
- Corporate Finance Institute: Understanding Cost Centers
- Wikipedia: Cost Centre
Suggested Books for Further Studies
- Cost Accounting: A Managerial Emphasis by Charles T. Horngren, Srikant M. Datar, and Madhav V. Rajan
- Management and Cost Accounting by Alnoor Bhimani, Charles T. Horngren, Srikant M. Datar, Madhav V. Rajan
- Cost Management: A Strategic Emphasis by Edward J. Blocher, David E. Stout, Gary Cokins, and Paul E. Juras
- Principles of Cost Accounting by Edward J. Vanderbeck and Maria R. Mitchell
Accounting Basics: “Support Cost Centre” Fundamentals Quiz
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