Business, Marketing, and Management Principles for IT and Engineering

15

Profit Centers, Cost Control, and Standard Costs

15.1  PROFIT CENTERS AND COST CENTERS

A profit center is an organizational unit whose manager has been given full responsibility to operate on a profit-and-loss basis, his performance being judged on results. As its name implies, a profit center’s income statement must show steady profits, not losses. Subsidized profit centers are an oxymoron.

By contrast, a cost center typically offers support functions to other company departments and operates on a budget granted by general management. The information system department, for example, is quite often a cost center (which constitutes a very bad policy). Cost centers have neither a soul to blame nor a body to kick. Service departments ...