What is a profit centre and what are the advantages and dissadvantages ?

Answer 1

A profit centre is a responsibility unit that measures the performance of a division, product line, geographic area, or other measurable unit. Divisional profit figures are best obtained by subtracting from revenue only the costs the division manager can control (direct division costs) and eliminating allocated costs common to all divisions (e.g., an allocated share of company image advertising that benefits all divisions but is not controlled by division managers). Profit is a very often used method to evaluate a division's financial success as well as the performance of its manager. In determining divisional profit, a Transfer Price may have to be derived. The divisional profit center allows for decentralization. As each division is treated as a separate business entity with responsibility for making its own profit.

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Answer 2

A profit center is nothing more than an accounting and operating structure which allows you to track revenue, costs and expenses unique to each product or service offered. The real advantage is that you know which segments of your business are profitable and which are not.