profit centres

lgarside

Hello can someone give me some examples of cost and "profit" centres. I don't really understand the difference between these and how they interact. For example in a factory the production line making christmas trees (thought I would be seasonal) is this cost centre also a profit centre? If not which part would be the profit centre?

Thanks

purplegirl

The production line would be a profit centre as they are making the product to make profit.
A cost centre would be marketing, for example.

lgarside

Thanks purple girl, so would you have to allocate costs to both the profit centre and cost centre? In the previous example would sales be a profit centre as once the trees are sold they will produce a profit, or would this be a cost centre as it's not directly related to making the product?

Many thanks for your help.

bryan100

your total sales would be allocated to the various profit centres you have created. You might have 3 departments in a shop, frozen food, fresh food and hardware. Each could be a profit centre. You would allocate direct costs and sales to each and then apportion any associated costs from cost centres i.e. admin, finance, rent etc