Cost Centre - a specific part of a business where costs can be identified easily.

There are different ways a business creates cost centres, these include:

• Product by product
• Individual departmentThe location
• The capital equipment used in each department

Benefits of using cost centres:

• The information will help highlight areas of the business that are performing well and those that are not
• The information makes managements job easier to see where the business needs to improve the most

Disadvantages:

• Collecting and spearting the information can be costly in terms of money and time
• In some businesses it is difficult to separate costs out into any sort of categories
• Some cost centres that underperform could be given less money which could make them perform even worse
• Some of the costs for a business may be outside of tis control
• If allocation of money is felt to be unfair this can demotivate certain departments of the business

Profit Centres - similar to a cost centre, except it takes into account the profit a centre is making and not the costs

The advantages and disadvantages of profit centres are therefore so similar there is no need to write them out again.