Profit center
Encyclopedia
A profit center is a part of a corporation
that directly adds to its profit
.
A profit center manager is held accountable for both revenues, and costs (expenses), and therefore, profits. What this means in terms of managerial responsibilities is that the manager has to drive the sales revenue generating activities which leads to cash inflows and at the same time control the cost (cash outflows) causing 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 purposes so that the management can follow how much profit each center makes and compare their relative efficiency
and profit. Examples of typical profit centers are a store, a sales organization and a consulting organization whose profitability can be measured.
Peter Drucker
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.”
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
that directly adds to its profit
Profit (accounting)
In accounting, profit can be considered to be the difference between the purchase price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.-Definition:There are...
.
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 separatelyA profit center manager is held accountable for both revenues, and costs (expenses), and therefore, profits. What this means in terms of managerial responsibilities is that the manager has to drive the sales revenue generating activities which leads to cash inflows and at the same time control the cost (cash outflows) causing 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 purposes so that the management can follow how much profit each center makes and compare their relative efficiency
Efficiency ratio
The efficiency ratio, a ratio that is typically applied to banks, in simple terms is defined as expenses as a percentage of revenue , with a few variations. A lower percentage is better since that means expenses are low and earnings are high...
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 Drucker
Peter Ferdinand Drucker was an influential writer, management consultant, and self-described “social ecologist.”-Introduction:...
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.”