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What is the difference between a cost center and a profit center?

Author:
Harold Averkamp, CPA, MBA

Definition of Cost Center

A cost center is a subunit of a company that is responsible only for its costs. A few examples of cost centers are:

  • Production departments within a factory
  • Service departments within a factory
  • Administrative departments such as IT and accounting

Definition of a Profit Center

A profit center is a subunit of a company that is responsible for revenues and costs. If a division of a company has responsibility for revenues, costs, and the resulting profits, it is a profit center.

Additional Comments

Cost centers and profit centers are usually associated with planning and control in a decentralized company.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

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