Cost & Profit Centres Flashcards
1
Q
Cost and profit centers classify different parts of a business based on their _______________ _______________
A
financial performance
2
Q
Cost Centre
A
Business departments that are responsible for incurring costs but do not generate revenue.
3
Q
Profit Centre
A
Business departments that generate revenue and incur costs.
4
Q
Who are responsible for the performances of profit and cost centers?
A
Managers
5
Q
2 examples of departments that are so-called “profit centers”
A
- Sales department/regions
- Retail outlets
6
Q
3 advantages of profit/cost centers
A
- Can assess the performance of individual parts of the business
- Allows for delegation of financial decision-making
- Allows financial decision to be made at a local level (e.g. prices can be set tailored to local market conditions for that particular business department)
7
Q
3 disadvantages of cost and profit centers.
A
- May cause rivalry between different departments
- Not always straightforward to separate costs/revenues
- Employees require financial skills and training.
