What is Cost Center and Profit Center?

What is a Cost Center?

-> It is a Cost Element, which is used to record and track the costs or expenses incurred in the organization.

-> Cost Centers are primary cost collection items in Controlling module.

-> Cost centers are assigned to single controlling area and single company code. Also can be assigned to Profit centers.

-> Cost spending such as Products, Manufacturing, Departments, Locations etc can be easily tracked for better decision making of the business.

-> Cost centers are grouped together to form Cost center hierarchy, which provides the cost reports of different lines of an organization.

What is a Profit Center?

-> It is also a Cost Element which tracks and records both revenues and costs.

-> Profit centers are Primary revenue collection items in Controlling Module.

-> Profit centers are assigned to single controlling area and multiple company codes.

-> Can be set according to Product lines, Locations, Departments etc.

-> Further can be used for Balance sheet postings (Fixed assets, receivables, payables).

-> Profit Centers are grouped together to form Profit center hierarchy, which provides the reports of cost and revenues of different lines of an organization.

Let’s consider an example below to understand Cost Center and Profit Center clearly:

Suppose, the organization has mapped Cost Centers and Profit Centers based on the Department level.

Now all the costs occurring for the department such as salaries to employees, office expenses, cafeteria costs, facilities costs, all these are tracked under Cost Centers.

But Profit centers are capable of tracking Revenues such as product sales, services etc, along with tracking of Costs incurred.

Remember:

Cost center mainly collects the costs of an organization, where as Profit center collects both costs and revenues of an organization.