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Cost Centres and Profit Centres

Content. Cost CentresProfit CentresHow to create themUses of cost / profit centresAdvantagesDisadvantagesExamples. Definitions. Cost centre ? An identifiable part of an organisation where costs can be calculatedProfit centre ? An identifiable part of an organisation where costs and revenue c

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Cost Centres and Profit Centres

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    1. Cost Centres and Profit Centres

    2. Content Cost Centres Profit Centres How to create them Uses of cost / profit centres Advantages Disadvantages Examples

    3. Definitions Cost centre An identifiable part of an organisation where costs can be calculated Profit centre An identifiable part of an organisation where costs and revenue can be calculated

    4. Cost and Profit Centres You need to be able to allocate all costs to a certain area If you can calculate revenues as well as costs can calculate profit (Total revenues- total costs) These are often used with budgets to assist with financial planning and control

    5. Creating cost and profit centres Cost / profit centres can be created in a number of ways: Geographically e.g high street banks Product / line of production Departments / divisions Individual products / brands

    6. Uses of Cost and Profit Centres They allow the business to compare performance between departments / across products / brands etc This allows the business to make decisions about underperforming areas If a profit centre is identified as doing well businesses may want to focus on the reasons behind this

    7. Uses Of Cost / Profit Centres They allow a more focused study of a firms finances Benchmarking can take place Responsibility for a profit / cost centre will motivate the individual responsible By placing responsibility with the person involved in the activity the finances may be run more efficiently than would be the case if a more remote, senior manager controlled it.

    8. Why operate cost and profit centres? Financial reasons they allow you to manage and control money. They allow the business to identify which areas are most profitable Organisational reasons helps with the organisation of departments and resources Motivational reasons motivates managers and workers

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