ACCA Performance Management (F5) Certification Practice Exam

What is an objective of a cost center?

1. To maximize revenue generation

2. To minimize costs while fulfilling its functions

3. To assess market performance

4. To maximize profits

The correct answer is: To minimize costs while fulfilling its functions

A cost center is specifically designed with the objective of managing and minimizing costs while it performs its designated functions within an organization. Unlike revenue centers, which focus on income generation, or profit centers, which aim to maximize profits through both revenue and cost management, a cost center's primary goal is efficiency in utilizing resources without directly contributing to revenue. By concentrating on cost control, a cost center can help the organization maintain budgetary discipline and operational efficiency. This focus can lead to improved performance by ensuring that resources are used wisely, unnecessary expenses are eliminated, and productivity is maximized without expecting to generate any income directly. Thus, the primary objective revolves around minimizing costs relative to its operational responsibilities while supporting the overall goals of the company. Other options suggest goals that are not aligned with the purpose of a cost center. While maximizing revenue or profits relates more to centers responsible for generating sales and overall financial performance, a cost center's roles are fundamentally about operational efficiency and cost-effectiveness.