The term cost center is used to identify a business unit responsible for certain costs incurred by the company. A company's cost center performance is evaluated by comparing budgeted costs with actual costs. Companies commonly aggregate budgets into a cost pool and allocate them to cost centers depending on the costs actually incurred.
A cost center is a sub-section or a small unit within an organization. Examples of cost centers that are commonly seen in companies are accounting, IT, human resources, and research & development.