Profit centre
A profit centre is a responsibility unit whose manager is accountable for both revenue and relevant costs, and therefore a measure of profit. Define which costs are controllable and distinguish managerial performance from the overall economic performance of the unit. Shared head-office allocations can help show total organisational cost but may not measure the manager’s decisions. Non-financial indicators are still needed to avoid short-term profit manipulation.
Worked example
A branch earns $500,000 revenue and incurs $350,000 controllable costs, giving $150,000 controllable profit. A separate $30,000 head-office allocation should be identified clearly.
Common mistake
Do not assume the highest short-term profit proves the best performance if service quality, maintenance or future capacity has been sacrificed.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | MA | Direct | September 2026–June 2027 |
| ACCA | PM | Direct | September 2026–June 2027 |
| FIA | FMA | Direct | September 2026–June 2027 |
