Question

What is a profit center and how is its performance evaluated?

Answer 1

A Profit center is understood as the Division of a company which is main base for the profit calculation. The managers of profit centers have decision making authority and therefore; profit centers are responsible for its own earnings. With the help of profit centers, least profitable and most profitable divisions can be identified.

For any profit center, performance is evaluated on the basis of its profit alone. However, profit is simply revenue minus total costs. Secondly, it must be improved with other profit centers in order to prove that it under performed or not.