A sub-unit of an organization is evaluated on the basis of its ROI.If this sub-unit's sales and expenses both increase by $30,000,how will the following measures be affected?
A)increase increase increase
B)indeterminate increase decrease
C)no change increase decrease
D)no change decrease no change

Question

A sub-unit of an organization is evaluated on the basis of its ROI.If this sub-unit's sales and expenses both increase by $30,000,how will the following measures be affected? 
A)increase increase increase 
B)indeterminate increase decrease 
C)no change increase decrease 
D)no change decrease no change

Quizplus · Accepted Answer

ROI = (Net Income / Total Assets) x 100

If both sales and expenses of the sub-unit increase by the same amount, the net income will remain the same. Therefore, the total assets of the sub-unit will increase by the same amount as well (since there is no change in net income). As a result, ROI will remain the same.

There will be no change in total assets for the organization as a whole, so there will be no impact on ROI at the organizational level. Therefore, the answer is C, which indicates no change in ROI for the sub-unit and no change in ROI for the organization as a whole.

A Sub-Unit of an Organization Is Evaluated on the Basis