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?
$\text {\underline{ROI } }$ $\text {\underline{Assert turnover } }$ $\text {\underline{ Profit margin} }$
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?
$\text {\underline{ROI } }$              $\text {\underline{Assert turnover } }$          $\text {\underline{ Profit margin} }$
A)increase increase increase
B)indeterminate increase decrease
C)no change increase decrease
D)no change decrease no change

Quizplus · Accepted Answer

ROI (Return on Investment) is calculated as Net Income / Investment. If both sales and expenses increase by the same amount, net income remains unchanged, thus ROI remains the same. Asset turnover is calculated as Sales / Assets. If sales increase, assuming assets remain constant, asset turnover increases. Profit margin is calculated as Net Income / Sales. If both sales and expenses increase by the same amount, net income remains unchanged, but since sales increase, the profit margin decreases.

A Sub-Unit of an Organization Is Evaluated on the Basis ROI ‾ \text {\underline{ROI } }ROI ​

A Sub-Unit of an Organization Is Evaluated on the Basis $\text {\underline{ROI } }$