24 August 2014
Cost Center :- Cost Center is defi ned as, ‘a production or service, function, activity or item of equipment whose costs may be attributed to cost units. A cost center is the smallest organizational sub unit for which separate cost allocation is attempted’. To put in simple words, a cost center is nothing but a location, person or item of equipment for which cost may be ascertained and used for the purpose of cost control. For example, a production department, stores department, sales department can be cost centers. Similarly, an item of equipment like a lathe, fork-lift, truck or delivery vehicle can be cost center, a person like sales manager can be a cost center. The main object of identifying a cost center is to facilitate collection of costs so that further accounting will be easy. A cost center can be either personal or impersonal, similarly it can be a production cost center or service cost center. A cost center in which a specific process or a continuous sequence of operations is carried out is known as Process Cost Center.
Examples: #Workshop in a manufacturing concern #Auto service department #Electrical service department #Packaging department
24 August 2014
Profit Center :- Profit Center is defined as, ‘a segment of the business entity by which both revenues are received and expenses are incurred or controlled’.(CEMA) A profit center is any sub unit of an organization to which both revenues and costs are assigned. As explained above, cost center is an activity to which only costs are assigned but a profit center is one where costs and revenues are assigned so that profit can be ascertained. Such revenues and expenditure are being used to evaluate segmental performance as well as managerial performance. A division of an organization may be called as profit center. The performance of profit center is evaluated in terms of the fact whether the center has achieved its budgeted profits. Thus the profit center concept is used for evaluation of performance.
So Profit center is a section of an organization that is responsible for producing profit.
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