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Transition of Cost Centers to Profit Centers

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'Wireless Inc., provides a variety of telecommunications services to residential and commercial customers from its massive campus-like headquarters in suburban Orlando. For a number of years the firm's maintenance group has been organized as a cost center, rendering services free of charge to the company's user departments (sales, billing, accounting, marketing, research, and so forth). Requests for maintenance have grown considerably, and demand is approaching the point where quality and timeliness of services provided are becoming an issue. As a result, management is studying whether the maintenance operation should be converted from a cost center to a profit center, with users to be billed for services performed.'

I need help in answering the questions on the case study aforementioned:
a) Differentiate between a cost center and a profit center. How is each of these centers evaluated?

b) What will likely happen to the number of user service requests if the company makes the switch to a profit-center form of organization? Why?

c) Assume that a user department has requested a particular service, one that is time consuming and costly to perform. The maintenance group's actual cost incurred in providing this service is $17,800, and the user has agreed to pay $20,800 if the switch to a profit center is made. If this case is fairly typical within the firm, which of the two forms of organization (cost center or profit center) will result in a more responsive, service-oriented maintenance group for Wireless? Why?

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Solution Preview

a. Cost center can be defined as division or subunit of an organization which is responsible only for its costs, such as service department, accounting department, etc. On the other hand, profit centers are responsible for both revenues and costs, such as sales division. Profit centers are ...

Solution Summary

The expert discusses the cost and profit centers.

See Also This Related BrainMass Solution

Action Research Proposal for Defects in the Distribution Center

Defects in Quality Service within the Distribution Center

Reducing Defects through Six Sigma
While working for a large company, the demand to provide quality service to customers has grown over the last decade. The supply chain is the heart and soul to providing quality customer service not just to the consumer, but to our stores as well. Processes vary throughout the course of the year from down time to peak seasons

Problem Statement
During our peak seasons, there are defects in how the Distribution Centers processes receivable products to shipping products to the stores. The defects that seem to occur deal with large volumes of receivables where little space is available to large quantities of products being shipped where little room is available. This has caused lost time of production resulting in wasted labor hours. This project will explore how the supply chain in the distribution center can improve customer quality by reducing defects in processes within the DC. (Distribution Center) day-to-day operations
Research Questions
The following is the primary research question:
" How to reduce defects in the process system through six sigma"
Follow-up questions are:
1) To research why defects continue to occur in D.C. process operations.
2) To evaluate six sigma as a tool to reduce the defects.
3) To give recommendations.
4) Does management understand what chronic defects in processing orders cost in customer satisfaction?
"Six Sigma is a methodology that provides businesses with the tools to improve the capability of their business processes. This increase in performance and decrease in process variation leads to defect reduction and vast improvement in profits, employee morale and quality of product Six Sigma helps in defect prevention."(Unknown, 2011). With Six Sigma, the objective is to look for opportunities in the process to reduce or eliminate defects. Using Six Sigma Will Guide Your Firm to:"(Unknown, 2011).
- Improve Customer Satisfaction
- Increase Profit Margins
- Shorten Cycle Times
- Reduce Costs

Defects in processes arise when the actual result is varying from the planned result. The planned result within the distribution center varies from day-to-day, only adding confusion as to the root problem that leads to a negative variation in the actual results. There is no solution to eliminate all the defects, but with research, the idea is to reduce the amount of defects in the process to provide quality service and to allow for a smoother transition from receiving the product, picking the orders, and shipping the orders to the stores. There are different tools that can lead to reducing the defects. My research will explore how Six Sigma can focus on those defects that are chronic and has negative impacts on the process.


Unknown. (2011). Six Sigma Methodology. Retrieved on June 19, 2013 from
Soni, M. (2010). Defect Prevention: Reducing Costs and Enhancing Quality Retrieved on
June 19, 2013 from http://www.isixsigma.com/industries/software-it/defect-prevention-reducing-costs-and-enhancing-quality/.

Develop the action research project proposal. The proposal should be professional and be written for presentation to those who would be responsible for reviewing and/or approving your proposal. It should include:

A summary of the problem to be addressed by the research project.
A description of the action research project.
A rationale for the proposal (description of why the study is important and/or relevant to business and/or management).
One or more hypotheses and/or predicted goals or outcomes.
Definition of important or relevant terms.
Statement of assumptions.

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