efficiency – Managers compare cost data from different time periods in order to see whether the cost centre is becoming more or less profitable. Generally a specific person (a cost centre manager) is held accountable for costs incurring in the cost centre under his or her control, in which case, collecting and comparing costs may motivate the manager to be more productive. Drawbacks There are a few drawbacks of cost centre which include: Negative effects on other departments – although the cost of operating a specific department is simple to calculate, cost centres are a source of encouragement for managers to underfund their elements so that it can benefit the cost centre, which can have a harmful effect on other departments within the firm. Hard to monitor efficiency – It is hard to keep a track of how efficient these centres are. Profit can not be controlled – Divisional performance can only be evaluated in terms of cost because profit is not in control of the manager. Efficiency and productivity cannot be assessed properly – in a cost centre, the result of a decision is calculated by cost alone; the achievements of the cost centre are not measured in financial terms, therefore it is hard to assess efficiency and productivity properly. Difference between a cost centre and a profit centre A cost centre adds to a firm's cost whereas a profit centre adds to the firm's cost and profit. Furthermore, the main objective of a cost centre is to minimise cost whereas the main objective of a profit centre is to maximise profit. Profit centres provide a wider and more general measurement of performance than the cost centre. In cost centre, the manager is only responsible for the cost whereas in a profit centre, the manager is responsible for cost and profit. In situations like this when manager is responsible for both, profit and cost, the contribution of each manager to the goal of the firm becomes easier to measure. See also Responsibility center Revenue center References Management accounting