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?

Practice Question options:

a)This method does not make allowance for difference in the size of compared divisions.

b)The minimum required rate of return may eliminate desirable opportunities from consideration.

c)Residual income does not measure how effectively the division manager controls costs.

d)Opportunities may be undertaken that will decrease the overall return on investment.