Essay On Cost Centers Vs Profit Centers

Owens & Minor is a distributor of surgical and medical supplies to hospitals and other health care facilities. Due to changing demand from customers, the company is facing increased operating costs, which has resulted in lower profit margins and even losses. In 1993, O&M recorded an $18 million profit, which was reduced to a loss of $11 million in 1995. The entire industry is experiencing similar difficulties. In an effort to resume profitability, O&M is evaluating alternatives to “cost-plus pricing”. Cost-plus pricing does not reflect the true cost of the services provided by O&M. Customers are demanding more of O&M while

operating costs. This could most effectively be accomplished in two ways. First, through a reduction in flying

Background: Cost centers are used in an organization to group expenses. For example, the patient registration department would be a cost center. All costs associated with operating the patient registration department would be grouped into this cost center. Items such as paper, copier rental, education and training for new employees, and computers used by the registration employees would be allocated to this cost center.

Like many of its most profitable competitors, Alcan has grown quickly through insightful series of mergers, acquisitions and rapid product development and launch strategies throughout the major markets it sells into. The company has settled on a highly decentralized divisional business model that has to the point of the case study served them well. Their IT systems are showing signs of massive overduplication of expense, with a $500M level of spending on enterprise applications with SAP being the majority. There are further signs of massive waste in their highly diversified organizational structure. There are 400 systems in the company all dedicated to pricing, a massive duplication of costs, time and effort on the part of IT across the five divisions. There are also over 1,000 concurrent enterprise-class IT systems being used throughout the company at any point in time. Conservatively speaking the company is spending 20% of their total enterprise software spend on maintenance costs alone. This is forcing the CIO, Robert Ouelette, to re-evaluate both the organizational structure and IT systems supporting it. The goals of this analysis are to evaluate the advantages and disadvantages of the existing application or IT management structure. An analysis of the proposal by Robert Ouelette is also provided along with an assessment of it potential effectiveness in solving the challenges is facing today.

According to, Skills for Business Decisions, “Cost-volume-profit (CVP) analysis examines changes in profits in response to changes in sales volumes, costs, and prices.” (Kimmel P.D. 2009) A company’s profit is the CVP profit equation of Profit = Revenue – Expenses. A Cost-volume-profit (CVP) analysis consists of five basic components that include:

Unlike a profit center, a cost center is not operated with the intention of earning revenue or making a profit directly. Instead, it is a part of a business that generates costs without making money. A cost center only enables profit centers to generate revenue. For example, in a small retail business, each store, or each class of products, may operate as a profit center, while the customer service and human resources divisions operate as cost centers.

To answer those questions, I will perform an evaluation on the corporate-owned store control system from budgeting, performance evaluation, incentives, and transfer pricing perspectives. Part King is a decentralized organization. Every corporate-owned store is a profit center. The stores buy auto parts from Part King and then sell them to the two segmentations: hobbyists and commercial customers. Profit is the difference between revenue and cost. Thus, profit center managers are evaluated in terms of

The IT department could outsource some activities to reduce some of the workload. They could also centralize some IT decisions to better align IT with the business strategies and provide more support to the affiliates.

• Meet regularly with other departments’ heads- Sales- HR-Accounting-Marketing-Customer Service-Institutional trading-R&A-Client Services to communicate IT strategies and projects. Gather feedback from other departments regarding current needs. Be sure that all departments are aware of an IT strategy and that all future projects and initiatives must fall within this strategy.

From the aspect of cost center[1], tracking information of cost expenses would facilitate management to figure out the productivity by an unbiased measurement. In operations, company units such as the human resources department or marketing department, except sales department, are not engaging in market share or generating revenues. In contrast, these departments contribute their capabilities for internal supports and help sales department turn profits to the company. Those efforts are a part of product costs and also are a norm for performance evaluation.

Few companies today can exist without an IT department. The IT department contains many of the company’s technology experts. Almost all companies rely on computers to some degree whether it is an international conglomerate or a small startup company. Some companies are very dependent on computer systems while others use them only for accounting for payrolls and everyday computer tasks. Most organization, even the smallest company have people whose job is to make sure that the computer system is up and running or an emergency contact to call when the computer systems goes down. In the future, I want to take the head of a database administrator of an IT department whether the size of the company is small or enormous.

have their own budget, but instead there should be an allocation of the IT budget per each

or increasing follow of profit. These will be done in order to be able to

Cost trade-off occur when there is a change in some activities change in the organization. These activities can either increase or decrease the costs. Integration of all activities should minimize distribution costs in a manner that supports an organization’s customer service objectives. There are different levels of cost trade-offs; within the distribution components, between distribution components, between company functions, between the company and external organizations.

Information Technology (IT) budgeting has become a constant struggle for companies, both big and small. The speed at which technology becomes obsolete, management’s expectations for quick deployment of new technology, and a supplier’s change of their operating model to focus on “as-a-service” (Feldman, 2015) recurring revenue, greatly affect how IT departments approach their budget these days. Other factors such as; lack of company vision or one’s inability to see how their IT department fits into the corporation’s goals and expectations are all huge pitfalls for the IT manager. The inability for IT and finance divisions to