Profit center

Definition

A profit center is a segment of a business for which revenues and expenses are separately tracked to evaluate profitability. Managers of profit centers are responsible for both generating revenue and controlling costs to maximize profit.

5 Must Know Facts For Your Next Test

1. Profit centers help in assessing the performance of different segments within an organization.
2. Managers of profit centers have decision-making authority over both revenue-generating activities and cost control.
3. Profit centers can be divisions, departments, or products within an organization.
4. The success of a profit center is typically measured by its net income or contribution margin.
5. Performance measurement for profit centers often involves comparing actual results against budgeted figures.

Review Questions

• What responsibilities does a manager of a profit center have?
• How is the performance of a profit center typically evaluated?
• What types of organizational segments can be considered as profit centers?

Related terms

Cost Center:

A business segment where only costs are tracked, and managers are responsible for controlling these costs.

Revenue Center:

A division or unit within an organization focused solely on generating sales revenue.

Investment Center:

A segment where managers oversee revenues, expenses, and investments to achieve return on investment targets.