What is the difference between a cost center and a profit center? Give a complete answer...

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Accounting

What is the difference between a cost center and a profitcenter? Give a complete answer that demonstrates what criticalelement distinguishes the profit center from the cost center.

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SolutionAn activity center or responsibility center is the unit ofbusiness organization which is accounted for a specific task oractivity Cost Center and Profit Center are the two major types ofthe activity centers A center for which cost is ascertained andused for the purpose of cost control is known as CostCenter whereas a center whose performance measurement canbe done only through its income earning capacity is known asProfit CenterThe ascertainment of the cost center is helpful in making aregular comparison of cost and its control On the other hand aprofit center includes both the cost it incurs and profit it reapsThese are created with an aim of assigning responsibility See Answer

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