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 (Return on Investment) is calculated by dividing net profit by total investment. As both sales and expenses increase by the same amount, there is no change in the net profit. Therefore, the ROI will remain the same. However, since expenses have increased, the profitability and efficiency of the sub-unit will decrease, leading to a decrease in other performance measures such as profit margin or asset turnover.

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