What is a profit centre?
A)a division of a company that has never incurred a loss
B)a responsibility centre that incurs costs and generates revenues
C)a centre evaluated by the rate of return earned on the assets allocated to the centre
D)a division of the company that has fewer costs than the other divisions

Question

Quizplus · Accepted Answer

A profit centre is a responsibility centre that incurs costs and generates revenues. It is evaluated based on its ability to generate profits or a positive net income. This means that the costs incurred by the centre must be lower than the revenues generated to generate a profit. Therefore, option B accurately describes a profit centre. Option A is incorrect because a profit centre may incur losses in some accounting periods. Option C is incorrect because while the rate of return is used to evaluate a profit centre's performance, it is not the only and definitive way to do so. Option D is incorrect because a division may have fewer costs than others, but this does not necessarily mean it is a profit centre.

What Is a Profit Centre