What is Profit Centre?
A profit centre refers to a centre whose performance is measured in cost and revenue both. It contributes to both revenue and expenses, resulting in profit and loss. Profit occurs when revenues are more than costs and loss occurs when costs are more than profits. The profit centre is accountable for all the actions associated with the sale of goods and production. The principal object of a profit centre is to generate and maximize profit by minimizing the cost incurred and increasing sales. The accomplishment of a profit centre is estimated in terms of profit growth during a definite period.
Difference between Cost Centre and Profit Centre
Responsibility accounting is management accounting where all the company’s management, budgeting, and internal accounting are held responsible. The primary objective of responsibility accounting is to hold responsible all the concerned departments of any particular function. The focus of responsibility accounting is mostly on responsibility centres. Different types of responsibility centres are being set up under responsibility accounting and every responsibility centre has different goals assigned to them which they have to fulfil in order to contribute overall growth of the organization. A responsibility centre is a functional business entity that is given definite objectives and goals, dedicated personnel, procedures, and policies as well as the duty of generating a financial report. Some basic responsibility centres that all organizations generally need are Cost Centre, Profit Centre, Revenue Centre, and Investment Centre.