profit centres

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lgarside
lgarside Registered Posts: 122 Dedicated contributor 🦉
in AAT Level 4 (Level 8 in Scotland)
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

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  • purplegirl
    purplegirl Registered Posts: 46 Regular contributor ⭐
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    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
    lgarside Registered Posts: 122 Dedicated contributor 🦉
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    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
    bryan100 Registered Posts: 23 New contributor 🐸
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    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

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