ITIL 4 Foundation Practice Exam

What does a cost centre refer to in an organization?

1. A revenue-generating department

2. A business unit or project assigned specific costs

3. A financial plan for the entire organization

4. An area of operation that manages profits

The correct answer is: A business unit or project assigned specific costs

A cost centre refers to a specific department, business unit, or project within an organization that is assigned particular costs. It is a segment where expenses are incurred, but it does not directly generate revenue. Cost centres are crucial for budgeting and financial management, as they help organizations track their spending and manage resources efficiently. By isolating costs, organizations can evaluate performance, identify inefficiencies, and make informed decisions about cost control and resource allocation. The concept of a cost centre is significant in financial accounting and management because it allows for better financial discipline and analysis within specific parts of the organization. Each cost centre can be monitored so that management can assess whether it is operating within its budget and determine the effectiveness of spending related to its goals and objectives.