A profit center is a
part of a business which is expected to make an identifiable contribution to the organization's
profit
Profit may refer to:
Business and law
* Profit (accounting), the difference between the purchase price and the costs of bringing to market
* Profit (economics), normal profit and economic profit
* Profit (real property), a nonpossessory inter ...
s.
Overview
A profit center is a section of a company treated as a separate business. Thus profits or losses for a profit center are calculated separately.
A profit center manager is held accountable for both revenue and costs (expenses), and therefore for profits. This means that the manager is accountable for driving the sales revenue generating activities which lead to cash inflows and at the same time controlling the cost-generating activities. This makes the profit center management more challenging than
cost center management. Profit center management is equivalent to running an independent business because a profit center business unit or department is treated as a distinct entity enabling revenues and expenses to be determined and its profitability to be measured.
Business organizations may be organized in terms of profit centers where the profit center's revenues and expenses are held separate from the main company's in order to determine their profitability. Usually different profit centers are separated for
accounting
Accounting, also known as accountancy, is the process of recording and processing information about economic entity, economic entities, such as businesses and corporations. Accounting measures the results of an organization's economic activit ...
purposes so that the management can follow how much profit each center makes and compare their relative
efficiency
Efficiency is the often measurable ability to avoid making mistakes or wasting materials, energy, efforts, money, and time while performing a task. In a more general sense, it is the ability to do things well, successfully, and without waste.
...
and profit. Examples of typical profit centers are a store, a sales organization and a consulting organization whose profitability can be measured.
Peter Drucker
Peter Ferdinand Drucker (; ; November 19, 1909 – November 11, 2005) was an Austrian American management consultant, educator, and author, whose writings contributed to the philosophical and practical foundations of modern management theory. H ...
originally coined the term ''profit center'' around 1945. He later recanted, calling it "One of the biggest mistakes I have made". He later asserted that there are only cost centers within a business, and “the only profit center is a customer whose cheque hasn’t bounced”.
See also
*
Cost center (business)
A cost centre is a department within a business to which costs can be allocated. The term includes departments which do not produce directly but they incur costs to the business, when the manager and employees of the cost centre are not accountabl ...
*
Revenue center
In business
Business is the practice of making one's living or making money by producing or Trade, buying and selling Product (business), products (such as goods and Service (economics), services). It is also "any activity or enterprise e ...
*
Investment center
An investment center is a classification used for business units within an enterprise.
The essential element of an investment center is that it is treated as a unit which is measured against its use of capital, as opposed to a cost or profit
...
*
Responsibility center
A responsibility center is an organizational unit headed by a manager, who is responsible for its activities and results. In responsibility accounting, revenues and cost information are collected and reported on by responsibility centers.
Typi ...
References
{{Reflist
Management accounting
pt:Centro de responsabilidade#Centro de resultados