Question

Ron is back in your office this week for a regular update on the projects you have been working on. His comment this week is "You know, I've been going through cost centre classifications all week with our accounting team in terms of profit, cost, and investment centres. Do you know what they had the audacity to classify HR as?"

Can you tell Ron the appropriate answer and explain how you would measure the performance of the type of centre in which HR has been placed? (8 marks)

Answer 1

a) Human resources is generally categorized as a cost center as the costs of the same needs to be classified to all other profit centres.

Basically cost center is a department or function within an organization that does not directly add to profit but still costs the organization money to operate. Cost centers only contribute to a company's profitability indirectly, unlike a profit center, which contributes to profitability directly through its actions.

And as the human resource department fits in the definition of a cost center the se should be categorized in the same.