Cost centre is defined as a location, machine, person, department, division, or any equipment or group of these, in relation to which direct and indirect costs may be ascertained and used for the purpose of cost control. Thus, an organisation for the costing purposes is divided in convenient units and one of the convenient units is known as cost centre. Example: collecting, sorting, washing of clothes are the various activities which are separate cost centre in a laundry.

The cost centre facilitates this function of cost control. Thus, correct identification of cost centre is a prerequisite for the successful implementation of cost accounting process. This also facilitates the fixation of responsibility in the correct manner.