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CMA Foundation · Fundamentals of Financial and Cost Accounting · Cost, Cost Centre, Cost Unit and Cost Drivers

Which one of the following units of a company is most appropriately classified as a profit centre rather than a cost centre or investment centre?

The regional sales branch whose manager controls revenue and expenses but not capital investment is a profit centre. Canteen and inspection are cost centres, while a division with plant-purchase authority judged on return on capital employed is an investment centre.

  1. AA regional sales branch whose manager controls both its revenue and its expenses but not its capital investmentCorrect
  2. BThe factory canteen providing subsidised meals to employees
  3. CA division whose head decides on new plant purchases and is judged on return on capital employed
  4. DThe quality inspection department of the plant

Explanation

A profit centre's manager is responsible for revenue and costs, hence profit, but not for investment decisions. The canteen and inspection department are cost centres, and the division judged on ROCE with investment authority is an investment centre.

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