The information below relates to costs,revenues,and assets anticipated in the Shoe Division of DKY Footwear Corporation:
$\begin{array}{ll}
\text { Sales } & \$ 4,000,000 \
\text { Variable costs } & 75 \% \text { of sales } \
\text { Average assets employed } & \$ 12,000,000\
\text { Fiverl cocte: } &0
\end{array}$

How would each of the following measures be affected if sales rise by $5,000 in the Shoe Division?
$\text {\underline{ROI } }$ $\text {\underline{Assert turnover } }$ $\text {\underline{ Profit margin} }$

A)increase increase increase
B)increase no change increase
C)increase increase no change
D)no change no change increase

Question

The information below relates to costs,revenues,and assets anticipated in the Shoe Division of DKY Footwear Corporation:
$\begin{array}{ll}
\text { Sales } & \$ 4,000,000 \
\text { Variable costs } & 75 \% \text { of sales } \
\text { Average assets employed } & \$ 12,000,000\
\text { Fiverl cocte: } &0
\end{array}$

How would each of the following measures be affected if sales rise by $5,000 in the Shoe Division?
$\text {\underline{ROI } }$              $\text {\underline{Assert turnover } }$          $\text {\underline{ Profit margin} }$

A)increase increase increase
B)increase no change increase
C)increase increase no change
D)no change no change increase

Quizplus · Accepted Answer

ROI = Profit Margin x Asset Turnover

If sales rise by $5,000, both sales and variable costs will increase proportionally, leaving the profit margin unchanged. Therefore, ROI will increase since Asset Turnover = Sales/Average Assets Employed will increase.

Since the fixed costs and average assets employed remain unchanged, the Asset Turnover will increase, leading to an increase in ROI and Asset Turnover. However, the Profit Margin will remain unchanged. Therefore, the correct choice is C.

The Information Below Relates to Costs,revenues,and Assets Anticipated in the Shoe