Describe the main characteristics and objectives of profit centres and investment centres.
a) Profit centres
A profit centre can be defined as a division of an organization that is treated as a standalone department and contributes to the profitability of an organization. The profits and loses of a profit centre
can be calculated separately
Characteristics of profit centres
- Standalone division of an organization.
- Generates revenues for the organization
- The profits and the loses of profit centres are computed separately from that of the organization.
- The manager is responsible for cost and profits.
Objectives of profit centres
- To calculate the profits and loses of a division in an organization
- To increase responsiveness to pressures
- To improve the competitiveness of the organization.
- To determine the effectiveness, efficiency and profitability of a division in an organization
- To increase resource utilization and profitability.
Conditions for the establishment of profit centres
- Leadership must have access to pertinent information before making such a decision.
- There should be a mechanism to determine the effectiveness of the sacrifice made.
- Investment centres
Investment Centre is a division of a company that makes use of capital to generate revenues. It can be a unit or a subsidiary of a company.
Characteristic of investment centres
- It is a subunit, a division or a subsidiary of an organization
- In investment centres, the manager is responsible for cost revenues and investments.
Objectives of investment centres
- The objectives of investment centres is to invest capital, utilize capital, evaluate loses and profits. Organizations establish investment centres to delegate responsibilities to their regional subsidiaries for increased efficiency and profitability
- Investment centres also create room for innovation, responsiveness and accelerate career growth for sub managers
Hayes, A. (n.d.). Investment Center. Retrieved from Investopedia website: https://www.investopedia.com/terms/i/investment-center.asp
Investment Center Analysis | Managerial Accounting. (n.d.). Retrieved from courses.lumenlearning.com website: https://courses.lumenlearning.com/sac-managacct/chapter/return-on-investment/