QUESTION 4 Choose \"true\" or \"false\" as applicable for each of the following items as they pertain to responsibility center reporting. In analyzing the operating results of an individual A. TRUE B. FALSE center, it would be most meaningful to deduct common fixed costs in calculating the operating income of the center A responsibility center manager could potentially have control over costs, revenues, and/or assets invested Responsibility center operating income includes the impact of controllable variable costs. C. Residual income is used in the numerator to compute asset turnover in a ROI analysis. Inventory would typically be EXCLUDED as part of assets invested the ROI calculation. - Residual income is equal to the difference CWhen using residual income as a measure of The use of return on investment (ROI) as a between total revenues and operating expenses. performance, it is not meaningtl to compare the residual incomes of divisions of different sizes. performance measure could potentially lead a responsibility center manager to accept a project that might be unfavorable for the company as a whole. Solution 1. False, because the common fixed cost would have been incurred whether individual center existed or not. 2. True, an investment responsibility center manager could have responsibility for assets, income, and expenses 3. True, variable cost is deducted 4. False, residual income is the profit earned in excess of required profit, we take profit as a numerator. 5. False, inventory is added as current assets 6. False. residual income is the profit earned in excess of required profit 7. True, residual income in absolute terms may create distorted pictures 8. False, if the project is beneficial to the center than it is beneficial for the company also generally. Exceptions can be there but in general not..

1. QUESTION 4 Choose "true" or "false" as applicable for each of the following items as they
pertain to responsibility center reporting. In analyzing the operating results of an individual A.
TRUE B. FALSE center, it would be most meaningful to deduct common fixed costs in
calculating the operating income of the center A responsibility center manager could potentially
have control over costs, revenues, and/or assets invested Responsibility center operating income
includes the impact of controllable variable costs. C. Residual income is used in the numerator to
compute asset turnover in a ROI analysis. Inventory would typically be EXCLUDED as part of
assets invested the ROI calculation. - Residual income is equal to the difference CWhen using
residual income as a measure of The use of return on investment (ROI) as a between total
revenues and operating expenses. performance, it is not meaningtl to compare the residual
incomes of divisions of different sizes. performance measure could potentially lead a
responsibility center manager to accept a project that might be unfavorable for the company as a
whole.
Solution
1. False, because the common fixed cost would have been incurred whether individual center
existed or not.
2. True, an investment responsibility center manager could have responsibility for assets,
income, and expenses
3. True, variable cost is deducted
4. False, residual income is the profit earned in excess of required profit, we take profit as a
numerator.
5. False, inventory is added as current assets
6. False. residual income is the profit earned in excess of required profit
7. True, residual income in absolute terms may create distorted pictures
8. False, if the project is beneficial to the center than it is beneficial for the company also
generally. Exceptions can be there but in general not.