A profit centre treats part of the organisation as though it were a company in its own right, so that its result can be measured. The difference from a cost centre is that it also carries revenue.
Compared with a cost centre
| Aspect | Cost centre | Profit centre |
|---|---|---|
| Amounts held | Cost only | Cost and revenue |
| Question asked | What did it cost? | Did it make money? |
| Typical mapping | Departments, lines | Divisions, product families, regions |
| Reports produced | Cost reports by cost centre | A notional P&L and balance sheet |
The two are not alternatives. The cost centre master carries the profit centre it belongs to, so cost collected on a cost centre flows through to its profit centre automatically. Cost centres are the detailed containers; profit centres are how those containers are bundled for a result.
Designing profit centres
How you cut profit centres depends on the unit management wants a result for: divisions in a divisional company, product families where products drive the business, branches where geography does.
Like cost centres, they have a standard hierarchy and support groups for alternative aggregation. Create masters with KE51 and maintain the hierarchy with KCH5N.
Where profit centres are assigned
Profit centres are assigned to many kinds of object; a transaction on that object routes the amount to the assigned profit centre.
| Object | Where it is set | Effect |
|---|---|---|
| Cost centre | Cost centre master | Costs on that cost centre flow through |
| Material | Costing view of the material master | Inventory and cost of sales flow through |
| Internal order | Order master | Costs collected on the order flow through |
| Sales document | Determined per item | Revenue flows through |
| Fixed asset | Asset master | Depreciation flows through |
Transfer pricing
When profit centres exchange goods or services, the price used directly affects each side result, which makes it a politically charged design question.
- Cost based: use production cost or standard cost, so the supplying unit earns no margin.
- Market based: reference an external market price, so the supplying unit can be judged as an independent business.
- Negotiated: use a price the two parties agree on.
Profit centres in S/4HANA
In ECC, Profit Center Accounting (EC-PCA) was a separate component with its own tables. From the new general ledger onwards the profit centre became an attribute of the general ledger itself, and S/4HANA completes that shift.
That removes the need to maintain a second ledger to report by profit centre. Every Universal Journal line carries the profit centre, so filtering an ordinary financial statement gives the result for that unit.