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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

What is the major shortcoming of using operating income as a performance measure for investment centers?

To determine

Concept Introduction:

Cost center:

Cost center incurs costs and does not generate the revenue directlyInvestment Center:

Investment center takes care of revenue, cost and investment

Profit Center:

Profit center generate revenue and incur expenses

To Indicate:

The major shortcoming of using operating income as a performance measure for investment center

Explanation

Major shortcomings of using operating income as a performance measure are explained as follows:

1. Ignorance of unit level cost: The operating income shows the business le...

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