Reference: 12-02
the Following Data Are Available for the South

Multiple Choice

Reference: 12-02
The following data are available for the South Division of Redride Products, Inc. and the single product it makes: $$\begin{array} { | l | l | } \hline \text { Unit selling price } & \$ 20 \\\hline \text { Variable cost per unit } & \$ 12 \\\hline \text { Annual fixed costs } & \$ 280,000 \\\hline \text { Average operating assets } & \$ 1,500,000 \\\hline\end{array}$$
-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) Residual income does not measure how effectively the division manager controls costs.
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) This method does not make allowance for difference in the size of compared divisions.