How to set up a cost center in Business Central

Two ways to model a cost center in Business Central

Most companies begin with dimensions. A dimension is a label added to ledger entries, and its values can stand for departments, branches or teams. Every revenue and expense posting carries the value. So reports can be filtered or split by cost center without extra accounts in the chart of accounts.

The Cost Accounting module goes further. It keeps a separate cost ledger that receives entries from the general ledger. Then you can reallocate them between cost centers and cost objects without touching the financial books. Choose it when rules must spread overheads, such as floor area or headcount, and you report after the spread.

Set up a Business Central cost center as a dimension

Open the Dimensions page, create a dimension such as DEPARTMENT and add one dimension value for each cost center. Use heading and total values to build a hierarchy. On General Ledger Setup, choose it as Global Dimension 1. Then it shows as a field on journals, documents and ledger entries, and works as a filter everywhere.

Next, make entry automatic. Assign Default Dimensions to employees, resources, fixed assets, vendors and items where the cost center is predictable. On expense accounts, set Value Posting to Code Mandatory, so nothing posts without a department. Users can still change the value on a document line when a cost belongs elsewhere.

Build cost centers with the Cost Accounting module

Start on the Cost Accounting Setup page. Select which dimension stands for cost centers and which for cost objects. Also decide whether the module should stay in line with those dimensions automatically. Then open the Chart of Cost Types and use the action that creates cost types from the chart of accounts.

Next, open the Chart of Cost Centers and run Get Cost Centers From Dimension. It creates one cost center for each dimension value. You can also enter them by hand. Each cost center has a code, a name, a responsible person and a sorting order. Then general ledger entries move to cost entries, in a batch or automatically.

Allocate costs between cost centers

On the Cost Allocations page, define a source and targets. The source is the cost type range and cost center you want to spread. The targets are the receiving cost centers or cost objects, each with a share. Shares can be fixed values, or they can follow a dynamic measure such as items sold or entries posted.

Allocations have levels. So service departments are spread before the production or sales departments that depend on them. Run the Allocate Costs batch job for a period and check the cost entries. If a rule was wrong, reverse the run from the cost registers. The general ledger stays unchanged throughout.

Report on each cost center in Business Central

With dimensions alone, use Financial Reports with a column layout for each department, or filter any report by the global dimension. Analysis Views summarize entries by dimension for the Analysis by Dimensions page. The dimension also works as a slicer in Power BI. You can enter G/L Budgets for each dimension value too.

With Cost Accounting, enter cost budgets for each cost center and compare them with actual cost entries after allocation. Use the cost accounting reports and financial reports based on cost types. Whichever route you choose, agree the list of cost centers with the people who answer for them. Our consultants can help you design it.

Questions about Business Central cost centers

Do we need the Cost Accounting module to have cost centers?

No. A department dimension gives most companies what they need: expenses tagged by cost center and reports split the same way. Add the module when you must spread overheads by rules and management wants results shown after those allocations. So start simple, and move up only when a real reporting need appears.

Is Cost Accounting included in the standard license?

It is part of the standard application, so there is nothing extra to install. It simply needs setup. That is why many companies have it without realizing. Open Cost Accounting Setup to see whether anyone has started. If the module is empty, a department dimension is still the quicker way to get a Business Central cost center working.

What is the difference between a cost center and a cost object?

A cost center is where costs arise, such as a department or a branch. A cost object is what the costs are for, such as a product line, a project or a service. Allocations usually move overheads from cost centers toward cost objects. So the two work as a pair, one for the source and one for the target of each cost.

Can one expense be split across several cost centers?

Yes. On a journal or a purchase invoice, enter separate lines with a different dimension value on each. For splits that repeat, use allocation accounts, or a recurring journal with allocations. They divide a posting by fixed shares across dimension values automatically. That saves your clerks from keying the same split every month.

Can we add cost centers to a system that is already live?

Yes. You can create a new dimension at any time and apply it to postings from then on. Changing which dimension is global is a bigger step, because it updates existing entries. So test it in a sandbox and run it outside working hours. Adding a cost center does not need a restart of your books.

Related guides for Business Central cost centers

A Business Central cost center depends on a sound account and dimension structure. These guides cover dimensions, the chart of accounts and costing in detail. The service page also explains how we help finance teams with reporting, so your cost center design suits the way your managers read results. For the product detail, see About cost accounting in Business Central.