TITIN NEFIA LESTARI

1710532045

Management Control Structure :

Responsibility Center ; Profit Center

The Role of Profit

A major objective of any profit oriented organization is to earn a satisfactory profit.

Profit is an important measure of effectiveness. Since profit is the difference between revenue
and expense, it is also measure of efficiency.

Profit measure : Effectiveness and Efficiency

The different between revenue and expense :

- Revenue : a measure of output

- Expense : a measure of input

Profit and investment centers are an importan control element of the vast majority of
firms above minimal size. But there is a distinction between profit and investment centers :
profit center managers are held accountable for profits but not for the investment made to
generate them.

Profit centers come in many different forms, some of which are considerably more
limited in scope of operations than others. There are several things that create the limited
form of profit center :

 When Sales Focused entities are made into profit centers by charging the
entity managers the standard cost of the product solds (accountable for gross
margin)
 Where Cost Focused entities are assigned revenues basedona simple function
of cost.

Internal profit centers that do not directly interface with the market and have no
control over revenues in a competitive sense are also sometimes called micro profit centers.

In deciding whether an entity is a profit center, it is not important to consider either

whether the entity’s goal is to maximize profits or whether any revenues are generated from
outside organization. The financial goals of many profit centers, such as most of those in not
for profit organizations, is to break even, or perhaps even incur limited losses. But even in for
profit entities,it is normally not considered desirable to generate higher profit than the budget.
It is not necessary that a profit enter generates any revenue from outside the organization.
Many profit centers derive most, or even all, of their revenuesby selling their products or
services to other entities within the same organization.