What Is a Profit Center?

A profit center refers to a responsibility center. If you can control production and sales at the same time, you must be responsible for both costs and revenue. However, you have no responsibility or power to determine the level of asset investment in the center. To evaluate the performance of the center, then the center is called the profit center. Profit centers include two types: one is a natural profit center, which sells products directly to the outside of the company and conducts purchases and sales in the market. The other is an artificial profit center, which sells products mainly within the company at internal transfer prices. ^[1]

Profit Center

A profit center refers to a responsibility center. If you can control production and sales at the same time, you must be responsible for both costs and revenue. However, you have no responsibility or power to determine the level of asset investment in the center. To evaluate the performance of the center, then the center is called the profit center. Profit centers include two types: one is a natural profit center, which sells products directly to the outside of the company and conducts purchases and sales in the market. The other is an artificial profit center, which sells products mainly within the company at internal transfer prices. ^[1]

Profit Center refers to a company that is responsible for both costs and revenue and profits

1. Independence-Although the profit center cannot be qualified externally, it is an independent operating entity internally. It enjoys a high degree of autonomy in product prices, procurement sources, personnel management, and equipment investment.

2. Profitability-each profit center will have an independent

Profit centers can be natural or artificial.

The natural profit center refers to the actual income from selling products or providing services in the external market.

For the profit center to play its due role, the profit center should generally have

The profit of the profit center is determined according to the controllable income and costs that the profit center can influence and control. Those income and costs that occur or are obtained within the scope of their operating activities but are not directly related or uncontrollable are excluded from profit Beyond the profit calculation of the center.

Nowadays, it is becoming more common for companies to implement profit centers. The reasons are as follows:

1. Product diversification: Based on the sustainable operation of enterprises, many labor-intensive traditional industries, such as the textile industry, footwear industry, and hardware industry, have turned to non-related product development. For example, textile companies sold parts of their factories for conversion, while shoe factories increased

in

In order to pursue future development and operation performance, the existing functional organizations cannot adapt. Profit

After the profit center system was established, the heads of the centers must be anxious to know the operating success of each month

(1) When the profit center does not calculate common costs or

Operating mechanism of profit center:

For the pursuit of future development and operations

Independent accounting of profit centers within enterprises and enterprise groups: Enterprise managers can timely and accurately understand the operating results of internal profit centers (including internal and external revenue, costs, and profits), and provide a basis for management control and assessment.

The internal accounting of the business unit of the business group operating mode: It is impossible to reflect the business results of the business unit through the traditional company-based accounting for the business group operating in the business unit mode rather than the company. Provide solutions with profit center accounting.

Independent accounting of product lines / business lines across companies under an enterprise group: For matrix-managed enterprise groups, separate calculations are made according to the product line / business line and company organization to understand the profitability of the group's product lines and business lines The situation needs to reflect the operating performance of the product line / business line across the company.

Internal settlement between internal profit centers: Due to the adoption of an internal market mechanism between internal profit centers, the provision of internal products / services between profit centers requires internal settlement rather than external settlement, which requires profit center accounting. Provides internal settlement processing.

Cost allocation and refined profit center accounting: The objects of accounting need not only go to the cost center, but also need to be set to the dimensions of products, customers, regions, etc. according to customer needs.

Profit Center Product Solution Overview

Under the complex multi-group and multi-organization structure, and under the requirements of refined internal management and assessment, group companies need to introduce a profit center model of responsibility accounting: the profit center is the main accounting body, and the mechanism of responsibility, power, and interest is unified. As a basis, UFIDA NC6 provides an information system for internal accounting and management reporting of profit centers in accordance with management accounting elements, which can help group companies to achieve independent accounting of internal profit centers, independent internal accounting of the business department under the operating mode of the business department, and cross-company Product line / business line management and accounting, internal settlement when profit centers provide internal products / services, and the costs of auxiliary service organizations are allocated to business organizations, and higher-level management costs are allocated to lower-level business organizations. The business system remains tightly integrated, thereby fully, efficiently and accurately realizing the requirements for internal organization and enterprise management under the group's multiple model management mechanism.

Key applications of profit center solutions

Internal accounting system of profit center of enterprise group

Establish a group-level business department, product line / business line type organization as a profit center to establish profit center accounting-related entities; establish a control scope to cover the scope of business-related organizations, and establish a hierarchical organizational structure of profit centers, based on The profit center calculates.

Definition, collection and application of traffic indicators

Flexible definition of various business volume indicators involved in enterprise management to meet the requirements of enterprises for data collection, storage and use of non-monetary business volume. Can be expanded as needed. Business volume indicators are used as cost drivers for cost allocation, which can better meet the complex processing requirements of enterprises for cost allocation.

Processing of internal settlement

Provide internal settlement statements to support internal settlement applications between internal responsibility centers of enterprises; internal settlement statements can reference internal transfer prices.

Cost sharing between responsibility centers

Provide the setting of allocation tasks and the definition of allocation rules, regularly perform allocation processing, form the allocation results, and calculate to the relevant responsibility center.

Product application value

Support accounting and assessment of internal responsibility centers under various organizational models of group companies

Allocation of support and support department overheads to business units and business objects

Support internal market-oriented management requirements and provide internal settlement between responsible centers

Support the charge of the responsibility center and make the external costs borne by the responsibility center more reasonable