ACCA Performance Management (F5) Certification Practice Exam

Which type of performance measurement division focuses on controlling costs?

1. Revenue center

2. Investment center

3. Cost center

4. Profit center

The correct answer is: Cost center

The focus of a cost center is to manage and control costs associated with specific functions within an organization. Cost centers do not generate revenue or have responsibility for profits; instead, their primary goal is to ensure that their operations remain efficient and do not exceed budgeted costs. Managers of cost centers are usually held accountable for the costs they incur and are tasked with identifying ways to enhance efficiency and reduce unnecessary expenditures. In contrast, revenue centers are primarily responsible for generating sales but are not directly concerned with controlling costs. Investment centers manage both revenues and costs as well as invested capital, requiring a broader focus including profitability. Profit centers, while they do take costs into account, primarily aim to optimize the relationship between revenue and expenses to generate profit. Therefore, the clear focus of a cost center on controlling costs makes it the appropriate choice in this context.