Profit Center & Cost Center

PROFIT CENTER:

Profit center is a department within an organization that incurs costs and directly generates revenue.

 Example: Sales, customer services

• Department within an organization that incurs costs & directly generates revenue

• Focuses on customer satisfaction and market competitiveness

• Used to measure the financial performance of different departments, teams, or business units.

COST CENTER:

Cost center is a department within an organization that incurs costs but does not directly generate revenue.

Example: Marketing and Advertising

• Function within an organization that does not directly add to profit but still costs money to operate, such as the accounting, HR, or IT departments

• Incur costs, such as salaries, materials, and overheads

• The main function of a cost center is to track Expenses.

 A)   Impersonal Cost Center:

     Deal with equipment and machinery.

B)   Operational Cost Center:

    Concerned with people or machines in activity.

C)   Process Cost Center:

    Concerned with a specific process or event.