ACCA Performance Management (F5) Certification Practice Exam

Which division of performance measurement is primarily concerned with profitability?

1. Cost center

2. Profit center

3. Revenue center

4. Investment center

The correct answer is: Profit center

The division of performance measurement primarily concerned with profitability is the profit center. A profit center is an organizational unit or division that is responsible for generating revenue and controlling costs, thus focusing on profit as the key performance metric. This means that the performance of a profit center is evaluated based on its ability to generate profits, considering both income from sales and expenses incurred. In the context of performance measurement, this concept allows for a clear assessment of how effectively a division is managing its operations to contribute to the overall profitability of the organization. Profit centers are typically tasked with having greater responsibilities compared to other divisions, such as cost centers or revenue centers, because they must balance their revenue generation against their costs to achieve profit goals. Cost centers, on the other hand, are focused solely on controlling costs without generating revenue, making them less relevant when it comes to profitability. Revenue centers concentrate on generating sales and do not take expenses into account, which also excludes them from the profitability focus. Investment centers, while concerned with profitability, include additional considerations such as return on investment and capital employed, which broadens their focus beyond just profit itself. Thus, the profit center stands out as the division dedicated to assessing profitability directly, making it the appropriate choice in this scenario.