Delmar Corporation Is Considering the Use of Residual Income as a Measure

question 65

Multiple Choice

Delmar Corporation is considering the use of residual income as a measure of the performance of its divisions.What major disadvantage of this method should the company consider before deciding to institute it?

• A) This method does not make allowance for difference in the size of compared divisions.
• B) Opportunities may be undertaken which will decrease the overall return on investment.
• C) The minimum required rate of return may eliminate desirable opportunities from consideration.
• D) Residual income does not measure how effectively the division manager controls costs.

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Definitions:

Marketing Plans

Strategic documents that outline a company’s strategy for promoting its products or services.

External Forces

Factors outside of an organization's control that can impact its performance and strategy, such as economic conditions, social changes, technological advancements, political/legal shifts, and environmental factors.

Tactical Planning

Short-term planning focused on achieving specific goals within a limited timeframe, often as part of a broader strategic plan.

Market Planning

The process of analyzing one's market, setting marketing objectives, and defining strategies to achieve these objectives.