Expense centers are responsibility centers for which inputs, or expenses are measured in monetary terms, but for which outputs are not measured in monetary terms. There are two general types of expense centers:
- Engineered expense centers are expense centers in which all or most costs are engineered costs. Engineered costs are elements of cost for which the “right” or “proper “amount of costs that should be incurred can be estimated with a reasonable degree of reliability. Cost incurred in a factory for direct labor, direct material, components, supplies, and utilities are examples.
- Discretionary expense centers are expense centers in which all, or most, costs are discretionary. Discretionary costs/managed costs are those for which no such engineered estimate is feasible the amount of costs incurred depends on management’s judgment about the amount that is appropriate under the circumstances.