It begins with preparing a budget, evaluating the actual performance, and implementing the necessary actions required to rectify any discrepancies. The primary functions of the cost center are to control the costs of the company and to reduce the unwanted costs the company may incur.įor example, the customer service facilities may not create direct profits for the company, but it helps control the costs of the company Control The Costs Of The Company Cost control is a tool used by an organization in regulating and controlling the functioning of a manufacturing concern by limiting the costs within a planned level. read more is a subunit (or a department) that takes care of the costs of the company. It comprises research and development, accounting and human resource departments. What is Cost center?Ī cost center Cost Center Cost center refers to the company's departments that don't contribute directly to the corporate revenue however, the firm has to incur expenses for keeping such units operative. Now that we understand the basic differences between Cost Center vs Profit Center, let us look at each one of them in detail. There are many differences between cost center vs profit center.
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You are free to use this image on your website, templates etc, Please provide us with an attribution link How to Provide Attribution? Article Link to be Hyperlinked In a decentralized company where the control and the responsibility are shared, you will be able to see the existence of cost and profit centers. You won’t see a cost center and a profit center in a centralized company since the control of the company is from a small team at the top. And a profit center acts as a sub-division of a business because it controls the most important key-factors of every business. So a cost center helps a company identify the costs and reduce them as much as possible. On the other hand, a profit center is a subunit of a company which is responsible for revenues, profits, and costs. A cost center is a subunit of a company that takes care of the costs of that unit. Differences Between Cost Center and Profit CenterĬost Center is that department within the organization which is responsible for identifying and maintaining the cost of the organization as low as possible by analyzing the processes and making necessary changes in the company whereas a Profit Center focuses on generating and maximizing revenue streams for the organization by identifying and improving activities such as sales it is much more complex and has a wide area of scope.Ĭost centers and profit centers are both reasons for which a business becomes successful.