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:

KMnO4

Potassium permanganate, a strong oxidizing agent used in a variety of chemical reactions and as a disinfectant.

Hg(OAc)2

Mercury acetate, a chemical compound used in organic chemistry as a reagent, particularly in reactions involving carbocations.

NaBH4

Sodium borohydride (NaBH4) is a reducing agent commonly used in organic synthesis to reduce aldehydes and ketones to alcohols.

Raney Nickel

A finely divided nickel alloy used as a catalyst in hydrogenation and other chemical reactions.