Evaluation of Cost Centers and Profit Centers
Dividing business operations of the whole organization into Cost Centers and Profit Centers is important to any large business. It is when a small business grows, it becomes more and more difficult to manage it, especially its finance.
Cost Centers help managers to identify which costs are attributed to which product, unit, section, department or branch of the firm. They also show how each Cost Center contributes towards the firm’s overall Total Costs (TC), and which Cost Center generates the highest costs.
Profit Centers help to determine which Profit Center generates the most, or the least profit, and how each Profit Center contributes towards the overall profits of the business.