PROFIT CENTRE

PROFIT CENTRE

As the name suggests the Profit center means the various divisions of a company which operate and  generate revenues and profits .

Generally the acid test for a division to be treated as profit center are

1. It can operate on it's own even though there are transactions with other divisions of the company

2. The good and/or services can be/ is  sold in the market without clubbing it with the product/service of other division

3. Some times even if the division is presently catering to captive demand it is treated as a profit center to look at each department/division profitability and efficiency.

As per the Accounting Standard on Segment Reporting ( AS 17 ) also information, about the different types of products and services an enterprise produces and the different geographical areas in which it operates is required . So if we can define the Profit centres it will help us in meeting with this also.


Now in case of Profit Center Creation there can be following variables that we need to capture in the CODE

1. Location of the Division

2. Product or Service Type

3. Location of the Market

We can keep a Six Digit Profit Centre and depending upon the location & markets

Define the First two For Countries or Locations

The Middle Two for Type of Goods or Services

An the Last two for Markets served

For example

Maruti produces Swift and sells it in 10 countries

So the Profit Centr for Swift produced from Gurgaon plant can be

Gurgaon - 11

Swift - 01

Indonesia - 21

So the Profit Centre for Sale of swift in Indonesia from those Manufactured in Gurgaon can be

110121

whereas  if we want to see only for Swift tt can be for all profit centers

000100 to 990199

And for Gurgaon it will be

110000 to 110099

And for Indonesia

000021 to 999921

This is more for analysis purpose and for accounting there would be standard segenmentation that would be useful and reportd in MIS ,