Question

Which of the following terms is used to describe a cost center whose costs are charged to other departments in the organization?

Option 1: Profit center

Option 2: Investment center

Option 3: Revenue center

Option 4: Cost center

Answer 1

A cost center whose costs are charged to other departments is known as a cost center, even if it earns revenue and has a profitable operation.

Step-by-step explanation:

The question relates to types of centers within an organization and how they are categorized based on their financial activities. The correct term to describe a cost center whose costs are charged to other departments in the organization is simply Option 4: Cost center.

Cost centers are parts of an organization that do not directly generate revenue but incur costs, which are then allocated to other departments based on their use of the cost center's services or resources. In the given scenario, even though the center earns revenues of $20,000 with variable costs being $15,000, indicating that it is profitable, it is still considered a cost center if its primary role within the organization is to incur costs that are then charged to other departments.