If selling and administrative expenses decrease while other expenses remain constant, what will happen to return on investment (ROI)?
A)ROI will decrease.
B)ROI will increase.
C)ROI will not be affected.
D)We cannot determine the direction of the effect from the information provided.

Question

Quizplus · Accepted Answer

Selling and administrative expenses are part of operating expenses, which are deducted from the operating income to arrive at the net income before taxes. If these expenses decrease, operating income will increase, leading to an increase in net income before taxes. ROI is calculated by dividing net income by the total investment. As net income increases, ROI will also increase. Therefore, the correct answer is B.

If Selling and Administrative Expenses Decrease While Other Expenses Remain