Plain definition
A profit centre is an area whose manager is assessed on both revenue and costs and therefore a defined profit measure. The measure must state transfer pricing and shared-cost rules.
Illustrative example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
A regional branch sells and incurs local costs. Head office allocates systems cost, so reported branch profit is . If head office changes the allocation method, the branch result changes even if branch operations do not.
Why it matters
A profit-centre figure can motivate commercial decisions, but unfair transfer prices or unexplained allocations can make managers optimise the report rather than the company.
Practical consequence
Publish the profit definition, controllable versus allocated items, and transfer-price rules before performance review. Explain material allocation changes separately from operational performance.