ACCA Performance Management (F5) Certification Practice Exam

What type of center is responsible for generating revenues?

1. Cost center

2. Revenue center

3. Profit center

4. Investment center

The correct answer is: Revenue center

The correct choice is a revenue center, which is specifically designed to focus on generating revenue through its activities. In an organization, a revenue center is a segment that has responsibility solely for sales and income generation, without being held accountable for the costs involved in generating that revenue. This means that the performance of a revenue center is evaluated based on the amount of revenue it brings in, making it distinct from other types of centers. For example, while a profit center is evaluated based on its ability to generate profit—where revenues are measured against costs—an investment center is accountable for not only profit but also for the investment made in assets, which includes assessing the return on investment. A cost center, on the other hand, does not focus on revenue generation at all; instead, it is responsible for controlling costs without revenue targets. Understanding how these centers operate is crucial for performance management as it helps organizations to evaluate specific responsibilities and outcomes aligned with their strategic goals.