B. When the target return in dollars for residual income is calculated as a percentage of assets employed, it would normally include assets that are in use and expected to generate a return. Fixed assets that are used in division operations are expected to provide a return in the current period and would usually be included in the residual income calculation.

C. Although gross assets employed are generally used in calculating Residual Income, a variation on the calculation adjusts net income to remove interest expense (i.e., by adding interest expense after tax back to net income) and adjusts the calculation of the target return by subtracting from total employed assets the current liabilities that do not incur interest. The calculation is:

Net Income + [Interest expense × (1 - t)] - Target return in dollars: a % of (Employed assets - Non-incurring bearing current liabilities) = Residual Income

When the target return in dollars for residual income is calculated as a percentage of assets employed minus non-interest incurring current liabilities, division accounts payable would be incorporated into the calculation of a division's investment base because accounts payable normally do not incur interest.

D. When the target return in dollars for residual income is calculated as a percentage of assets employed, it would normally include assets that are in use and expected to generate a return. Inventories that management controls are expected to provide a return in the current period and would usually be included in the residual income calculation.