Service department charges are allocated to the profit centers based on usage of services by profit center.
An area of a company that is handled as a separate entity is called a profit center. As a result, a profit center's profits or losses are calculated independently.
A profit center manager is responsible for both sales and spending, and as a result, for profits. This means that the manager is responsible for directing the sales revenue-generating operations that result in cash inflows and for managing the cost-generating activities at the same time. Profit center management is consequently more difficult than cost center management. A profit center business unit or department is recognized as a separate entity, making it possible to calculate revenues and expenses and assess profitability, making profit center management equal to operating a stand-alone company.
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