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Cost and Profit Centres

Cost and Profit Centres. Definition. Cost Centre – an identifiable part of an organisation for example a department, a product or branch – for which costs can be calculated.

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Cost and Profit Centres

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  1. Cost and Profit Centres

  2. Definition • Cost Centre – an identifiable part of an organisation for example a department, a product or branch – for which costs can be calculated. • Profit Centre – an identifiable part of an organisation for which costs and revenue (and thus profit) can be calculated.

  3. Advantages • Focussed study of firms finances • Areas of weakness can be addressed • Benchmarking • Individual responsibility – motivation • Organise managers and delegate responsibility. • Identify areas of good practice

  4. Disadvantages • Difficult to allocate costs to particular centre or division • Adds stress and pressure of staff – therefore can demotivate • For specialist areas – unable to recognises whether cost/profit centres are running in/efficiently. • Statistics based – no qualitative factors considered.

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