A cost center is a sub-unit within an organization that is responsible for incurring and tracking specific expenses.
On the other hand, a profit center is a business unit or a department within an organization that is responsible for generating revenue and producing a profit.
The Differences Between a cost center and profit center are as follows:
- A cost center is a section within an organization that is primarily focused on ascertaining and controlling costs, whereas, a profit centre is a section within an organization that is responsible for generating revenue and contributing to the overall profitability of the organization.
- The main objective of a cost center is to ensure that expenses are managed effectively and efficiently, while the main objective of a profit center is to increase the profits of the organization.
- A cost centre is a section in an organisation that supervises all cost in an organisation, while profit centre is a section in an organisation that is responsible for the profit of the organisation. In short, a cost center is concerned with cost management, while a profit center is concerned with profit generation.
- A cost center's primary responsibility is to minimize or eliminate expenses within an organization to the barest minimum while profit center is responsible for generating and increasing profit.
- A cost center is less complex as the only focus is on costs while profit center is more complex as it focuses on costs, revenue, and more importantly, profit.
- A cost centre scope of operation is usually narrow since it deals with only cost, while profit centre scope of operation is usually broader since it deals with cost, profit and revenue centres.
- The performance of a cost center is measured by its ability to control costs, while the performance of a profit center is measured by its ability to generate profits.
- Cost control is a key focus for cost centers, while cost control is less important for profit centers.