• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

A cost center is an area of responsibility to which costs can be allocated. A profit center is an area of a business for which both costs and revenue can be identified.

Extracts from this document...


Cost Centres progress questions page 135 A cost center is an area of responsibility to which costs can be allocated. A profit center is an area of a business for which both costs and revenue can be identified. Business might decide to operate cost centres rather than profit centres when certain departments are impossible to calculate revenue like accounts where they are charged separately for their service. It can also be convenient for organisations that do not earn revenue (e.g. town council). Cost centres aim to monitor and control costs that can be compared with other areas of the business. The ways the a profit center can be divided up can be according to: Product- The business can divide according to their several differentiated products. ...read more.


It also gives in-depth information about the operation of the business so that targets can be established for improvements. The benefits that employees may receive due to cost and profit centres are: the cost and revenue can act as motivators so control can be delegated and can get higher pay by keeping cost down or achieving profit targets. The extra responsibility may improve performance through the diverse and varied work, and learn more skills as a result. This may bring job satisfaction when the employee reaches their target. A business may improve their pricing policy through cost and profit centres by analyzing all the costs in each product. The appropriate decision can be made as to price their product in which profit can be made. ...read more.


The difficulties of dividing costs in cost centres are which techniques to use. Full costing is when costs are allocated according to the output the center produces. It can also be inaccurately distributed like a two person department pays the same costs of a ten person department. Also not all the costs can be directly associated with the centre, for example admin. It is impossible to allocate fixed costs evenly as others may use the areas of one department. Cost centres may be inappropriate when the firm only produces a single product as comparisons cannot be made and focusing on the costs is more time consuming that can be spent on other targets. It also applies to a firm that has unskilled workers as costs can be higher than anticipated and the output level does not reflect the performance of the employee. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Structures, Objectives & External Influences section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Structures, Objectives & External Influences essays

  1. external influences on a business

    in their yearly booklet or even on their website. Morrisons should advertise more environmental helping procedures they do more regularly to stop people like pressure groups of their back and making them stand out as an environmental friendly company. Piracy and Electronic Communication (EC Directive)

  2. Barclays Investigating a Business

    the best bank in the UK' it would increase their profit margins immensely as they would have the largest market share compared to any other bank. However, this will come at a cost as they'd need to build new branches in order to expand.

  1. Interpretation of Financial Statements.

    Ratios can differ substantially between the size of company, type of business, markets in which the firm operates and the time of year when the ratios are calculated. Ratios are particularly useful when a pattern or trend can be established over the years.

  2. GCSE Applied Business Studies

    Richer Sounds profits are also used towards financing future improvements and developments to the company, which ensures secure, well paid employment for the staff working at Richer Sounds. Richer Sound's main objectives are to open between four to six stores in the current year.

  1. Factory Direct Selling by Cironi's Sewing Center.

    - Cironi's Sewing Center could face scrutiny and legal action because FDC practices are continually controversial and are seen as predatory practices by many in the sewing machine industry. B.) Industry - Local competitors struggle for gross margins between 30 and 35 percent.

  2. Investigating Business. Tesco PLC. I will be describing the aims and objectives of ...

    This has contributed to the success of Tesco?s in achieving their aim ?be a modern and innovative company?, because they have offered innovative services it has led them to being the top market leader for supermarkets in the UK, because they have introduced new services such as their club card

  1. Applied Business. Investigating a business Preston Manor High School

    This will affect their budgets affecting their objectives to spend on facilities. New Laws A new law introduced can have various impacts on schools. A new law of having healthier food in the canteen will be a negative aspect for the school, because it will cost the school to change

  2. Identify all the considerations that need to be taken into account when planning a ...

    instead of wasting hours sending letters and writing invoices, a business with an effective team could have someone doing that task while the others proceed with the business as usual. This is more effective and this will also save a business a lot of money.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work