ACCA Performance Management (F5) Certification Practice Exam

What characterizes a revenue center in a business unit?

1. Only responsible for cost management

2. Only responsible for the generation of revenue

3. Involves investment in capital projects

4. Focuses on product development

The correct answer is: Only responsible for the generation of revenue

A revenue center is specifically defined as a segment of a business that is primarily focused on generating revenue, which aligns perfectly with option B. This type of center is evaluated based on the income it produces, rather than on its ability to manage costs or invest in capital projects. In a revenue center, the primary goal is to maximize sales and income. Managers in this area are held accountable for achieving revenue targets and may implement various strategies such as sales promotions, customer relationship management, and pricing strategies to ensure high revenue generation. This distinction makes it clear why a revenue center is concerned exclusively with revenue generation, distinguishing it from other types of business units, like cost centers or investment centers, which have different focuses and measures of performance. In contrast, other options describe characteristics that apply to different types of centers within an organization. For instance, cost management is the primary concern of a cost center, while capital investment is typically associated with an investment center that evaluates the profitability of capital projects. Focusing on product development may pertain to research and development departments, which operate under different objectives than revenue centers. Hence, the definition of a revenue center is accurately captured by emphasizing its singular focus on revenue generation.