Business units (a) Define what is meant by each of the following: profit center, investment center, and cost center

Your answer should make clear the distinction between each of these types of centers.
(b) Briefly describe the criteria used to evaluate each of the three types of centers listed in part a.

What will be an ideal response?

(a) A profit center generates revenue as well as incurs costs. Examples include a sales department within a store, the store itself, and a sales territory.
An investment center is a profit center for which management can readily identify the assets invested (without resorting to arbitrary allocations). Examples include stores, branch offices, and hotels.
A cost center incurs costs but does not directly generate revenue. Examples include service departments, such as the accounting department or the legal department that render services to other parts of the business.

(b) Profit centers are evaluated primarily upon their profitability; therefore, responsibility income statements are prepared showing the revenue and costs applicable to each profit center. Each center's performance may then be compared with budgeted amounts, with the center's performance in past periods, and with the profitability of other profit centers within the organization.
The performance of an investment center may be evaluated using return on investment (ROI) measurements, such as return on assets (operating income or responsibility margin as a percentage of average total assets utilized by the segment during the period).
From a financial viewpoint, a cost center is evaluated on its ability to control (minimize) costs. The level of costs incurred is compared to such standards as budgets, costs incurred in prior periods, and the volume of activity within the cost center during the current period.
Qualitative considerations are also of great importance in evaluating cost centers. Revenue provides an objective measure of the benefit to the business resulting from the operation of a profit center, but no such measure exists for the benefit derived from the operations of most cost centers. Thus, both the "quality" of the services rendered by a cost center and the "value" of these services to the business are subjective judgments