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

question 169

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 that 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:

Cervical Cancer

A type of cancer that occurs in the cells of the cervix, often associated with infection by Human Papillomavirus (HPV).

Common Form

A widely used or recognized format, template, or mode of something, implying standardization.

Prostate-Specific Antigen (PSA)

A protein produced by cells of the prostate gland, levels of which are often measured to screen for or monitor prostate cancer.

Aggressive Forms

Pertains to types or methods that are characterized by forceful actions or attitudes.