Definition Profit Center. Description.
In a Profit Center, both inputs and outputs are measured
in monetary terms. Managers of these units are typically evaluated on measures
that relate expenses (monetary inputs) to revenues (monetary outputs), such
as operating profit or gross margin. This is fine as long as the accounting
profits are consistent with the underlying cash flows. Profit centers are
autonomous organizational units or departments designated as a separate entity
with decision-making capabilities to affect both revenue-making and expenses
processes. Often, profit centers are composed of several cost centers, expense
centers and revenue centers.
Organizational issues that are highly related to autonomous
profit centers are:
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Allocation of corporate overhead costs. Who gets to pay
what?
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Transfer Pricing.
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Cannibalization
by one profit center of another.
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Centralization and Decentralization.
Typical examples of these organizational entities are large
Stores, National Branches, Divisions or Strategic Business Units of large
corporations.
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Profit Centers Cases and Examples
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Profit Centers Special Interest Group
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Compare with:
Strategic Business Unit
| Economic Value Added |
Investment Center |
Cost Center |
Revenue Center |
Expense Center |
Performance Management
| Activity Based Costing |
Balanced Scorecard |
CSFs and KPIs |
Value Based Management
| Transfer Pricing
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Profit Centers Sponsor
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Special Interest Group Leader
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