Cost Center and Profit center Setup Decision.

[Former Member]

On What Basis , we have to decide to setup the Cost Center and Profits Centers.

my Clients business is mainly driven by the Projects undertaken for products assembling for Aerospace Products, and They are into IT and Engg services.

Can we get the Cost and Profitability reports as per the Projects Completion and also as per the different divisions?

[gaurav_modgil · Accepted solution]

Hi Pradeep,

Cost Centre is the lowest level in the organizational hierarchy where you want to book cost.This is generally influenced by your area of operation and the size of your business. For Example in your case

for products assembling for Aerospace Products, if you are a very big manufacturer with multiple factories throuout a wast geography, you chould set your factory as the cost centre. Further inside the factory you chd have Devisions as cost centre, or even departments. You chould go down to the level of each and every person... but that is only for the sake of giving this example

Generally in manuffacturing we can also have Production lines as the cost centre.

Profit centre on the other hand is a custom defined entity which is used to analyse profit. So if tou want to analyse how much profitable a perticular model of an aircraft is, you set that model as the cost centre. Here also we decide based on our need as to at what level we want to analyse.

Note here that in the case of profit centre a lot of realistic costs indirectly associated with the production of the Plane are also considered.

Hope this helps,

Regards

Gaurav