Cost Centre vs Profit Centre

Meaning Cost Centre:

A Cost Centre is a department or a unit which supervises, allocates, segregates, and eliminates all sorts of costs related to a company. The cost centre prime work is to check the cost of an organisation and to limit the unwanted expenditure the company may acquire.

The cost can be the determination of both person and location. In multinational companies, the cost centre is authorised to decrease and manage the cost. These costs are generally monitored by analysing and deducting the actual cost incurred with the standard cost.

Few types of cost centre are mentioned below:

  • Production Cost Center
  • Personal Cost Center
  • Service Cost Center
  • Impersonal Cost Center
  • Process Cost Center
  • Operation Cost Center

For example, the customer service department may not generate direct profits for a business, but it supports to control the expenses of business (by conceptualising what customers want) and also aids in reducing the costs of a company.

Meaning Profit Centre:

A Profit Centre is a division or department of a company which operates for the calculation of profit. In an organisation, different profit centres are managed by the managers, who identifies profits on the basis of costs and revenues. Profit Centre is accountable for all the actions associated with the sale of goods and production.

The principal object of the profit centre is to generate and maximise the profit, by minimising the cost incurred and increasing sales. This objective helps to uplift the profit-making capability of a company. The accomplishment of a profit centre is estimated in terms of profit growth, during a definite period. The achievement of a profit centre is examined by subtracting the actual cost from the budgeted cost.

This article is ready reckoner for all the students to learn the difference between the Cost Centre and Profit Centre.

Basis

Cost Centre

Profit Centre

Meaning

A cost Centre is a unit of a company that supervises the all the cost of a company

A Profit Centre is a department of an organisation which identifies a profit

Purposes

Controls cost and perform cost reduction

To generate and maximise the profit

Calculation of Performance

By analysing and deducting the actual cost incurred with the standard cost.

By subtracting the actual cost from the budgeted cost.

Area of operation

Narrow

Wide

Nature of work

Less Demanding

Very Demanding

The above mentioned is the concept, that is elucidated in detail about ‘Difference between Cost Centre and Profit Centre’ for the Commerce students. To know more, stay tuned to BYJU’S.