Aaron Wilkinson NO
3/1/25, 12:52 PM
I would explain to Ron that the account team would most likely classify Human Resources (HR) as a cost centre. They would do this because the HR provides services to the entire company and does not have any associated sales or revenue.
A cost centre is a subunit that has responsibility for controlling costs but does not have responsibility for generating revenue1.
The accounting team would most likely measure the success of the HR department (in terms of cost) as how closely their actual costs were with the standard or budgeted costs.
I would try to put Ron at ease, that this method of classification is common among business, where departments or business units would be classified as either a Cost Centre, Profit Centre, or Investment Centre.
In order to be classified as a Profit Centre, the department would need to be responsible for generating some type of revenue (in addition to controlling costs), which the HR department does not. To be classified as an Investment Centre the department or business unit would be responsible for generating revenue through sales, and controlling costs associated with producing and marketing its products2.
(Introduction to Financial and Managerial Accounting, 2023,pp 450-451). Provide constructive feedback to at least two other students' postings. (2 marks)