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.

---

Definitions:

Cognitive

Pertaining to the mental processes involved in perception, memory, judgment, and reasoning.

Physiological

pertains to the branch of biology that deals with the normal functions of living organisms and their parts.

Stress Episode

A specific period in which an individual experiences mental, emotional, or physical strain or tension due to external or internal demands or challenges.

Stressor

An event, condition, or stimulus that causes stress or an adverse reaction in an individual.