What is an organizational unit responsible for its own costs known as?

A cost center is defined as an organizational unit that is responsible for its own costs. This unit is typically not directly responsible for generating revenue; rather, its primary focus is on managing and controlling the costs associated with its operations. Cost centers may include departments like accounting, human resources, or facilities management, where the emphasis is placed on efficiency and budget adherence.

The distinction comes from the fact that while a cost center aims to optimize expenditures, it does not contribute directly to sales. Other types of organizational units, such as revenue centers, focus on generating income, which contrasts with the core purpose of a cost center. Understanding this concept is essential for effective financial management in organizations, as it helps in analyzing and optimizing costs and resource allocation.