Cost Accounting Quiz: Return On Investment Roi
20 questions · exam conditions
0:00
Return On Investment RoiQuestion 1 of 20

The European division of a multinational corporation had operating income of €400,000. Its average operating assets for the year consisted of: Cash €50,000; Accounts Receivable €300,000; Inventory €450,000; and Net Plant & Equipment €1,200,000. The division's operations are financed in part by accounts payable of €250,000. Company policy defines operating assets as total operating current and noncurrent assets. What is the division's ROI according to company policy?

20.0%
22.9%
33.3%
50.0%
← Back to quizzes

Cost Accounting Quiz

Cost Accounting Quiz: Return On Investment Roi

Practice Return On Investment Roi in Cost Accounting with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Return On Investment Roi, giving you a quick way to practice the rules, question types, and explanations that matter most for Cost Accounting.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

All questions

Question 1

The European division of a multinational corporation had operating income of €400,000. Its average operating assets for the year consisted of: Cash €50,000; Accounts Receivable €300,000; Inventory €450,000; and Net Plant & Equipment €1,200,000. The division's operations are financed in part by accounts payable of €250,000. Company policy defines operating assets as total operating current and noncurrent assets. What is the division's ROI according to company policy?

  1. 20.0% (correct answer)
  2. 22.9%
  3. 33.3%
  4. 50.0%
Explanation: The key is to use the company's specific definition for the asset base. Company policy defines operating assets as total operating assets, without deducting operating liabilities like accounts payable.
  1. Calculate total average operating assets: €50,000 (Cash) + €300,000 (A/R) + €450,000 (Inventory) + €1,200,000 (Net P&E) = €2,000,000.
  2. Calculate ROI: Operating Income / Average Operating Assets = €400,000 / €2,000,000 = 0.20 or 20.0%.

Question 2

Sales $800k; income $80k; avg assets $400k. Compute ROI.

  1. 10%
  2. 20% (correct answer)
  3. 2.0x
  4. 40%
Explanation: ROI is income divided by average assets: 80,000 / 400,000 = 0.20, or 20%. The tempting wrong answer is 10%, which is income divided by sales - that is profit margin, not return on investment.

Question 3

Margin stays 8%; ROI falls from 16% to 14%. What happened?

  1. Higher asset turnover
  2. Lower asset turnover (correct answer)
  3. Lower profit margin
  4. Higher profit margin
Explanation: ROI equals profit margin times asset turnover. If margin stays at 8%, then ROI falling from 16% to 14% means asset turnover fell from 2 to 1.75. Lower profit margin is tempting, but it did not change; margin stayed at 8%. So the decline came from lower asset turnover.

Question 4

ROI is 12%. Turnover rises 10% and margin is unchanged. New ROI?

  1. 13.2% (correct answer)
  2. 13.0%
  3. 14.4%
  4. 10.0%
Explanation: ROI equals margin times turnover. With margin unchanged, a 10% rise in turnover multiplies the entire ROI by 1.10. So 12% times 1.10 = 13.2%. Avoid 13.0%, which treats a 10% rise as a 1 percentage point add-on instead of a multiplicative 10% increase.

Question 5

Margin rises 40%; turnover falls 20%. ROI change?

  1. Down 8%
  2. Up 20%
  3. Up 8%
  4. Up 12% (correct answer)
Explanation: ROI = margin × turnover. A 40% rise makes margin 1.4 times; a 20% fall makes turnover 0.8 times. Multiply: 1.4 × 0.8 = 1.12, so ROI is 12% higher. The tempting Up 20% just subtracts the percentages, but changes compound multiplicatively.

Question 6

Division A: margin 8%, turnover 2.0. Division B: margin 10%, turnover 1.6. Which has higher ROI?

  1. Division A only
  2. Division B only
  3. Both have 16% (correct answer)
  4. Both have 20%
Explanation: ROI equals margin times turnover. Division A: 8% times 2.0 = 16%. Division B: 10% times 1.6 = 16%. Both are the same, so neither is higher. The tempting error is choosing Division B only because its margin is larger, which ignores the lower turnover.

Question 7

ROI is 15%; asset turnover is 2.5. Required margin?

  1. 6.0% (correct answer)
  2. 10.0%
  3. 15.0%
  4. 37.5%
Explanation: Margin times asset turnover equals ROI, so margin = ROI / asset turnover = 15% / 2.5 = 6%. A tempting wrong answer is 37.5%, which comes from multiplying 15% by 2.5 instead of dividing.

Question 8

Margin is 12%; ROI is 18%. What is asset turnover?

  1. 0.67x
  2. 2.16x
  3. 1.50x (correct answer)
  4. 0.06x
Explanation: Margin times asset turnover equals ROI, so divide ROI by margin: 0.18 / 0.12 = 1.50x. Asset turnover is a ratio, not a difference; 0.06x is wrong because it subtracts the percentages instead of dividing them.

Question 9

Price cut lowers margin 8% to 7% but raises turnover 2.5 to 3.0. ROI?

  1. Falls to 17.5%
  2. Stays at 20%
  3. Falls to 18%
  4. Rises to 21% (correct answer)
Explanation: ROI equals margin times asset turnover, so new ROI is 7% x 3.0 = 21%, compared with 8% x 2.5 = 20%. The tempting wrong answer is saying it falls to 18% because the margin dropped 1 point, but that ignores the turnover increase. Multiply the two rates, don't just subtract the margin change.

Question 10

Sales $2,000,000; avg assets $1,000,000; target ROI 16%. Required margin?

  1. 4.0%
  2. 8.0% (correct answer)
  3. 16.0%
  4. 32.0%
Explanation: Asset turnover is $2,000,000 / $1,000,000 = 2. To earn the 16% target ROI, your margin times turnover must equal 16%, so margin = 16% / 2 = 8%. The tempting 16% just repeats your target ROI and ignores that assets turn over twice.

Question 11

Average assets rise from $400k to $500k; income stays $80k. New ROI?

  1. 16.0% (correct answer)
  2. 20.0%
  3. 25.0%
  4. 40.0%
Explanation: ROI is income divided by average assets. After the increase, average assets are $500k, so $80k / $500k = 0.16, or 16.0%. Don't use the old $400k base; that gives 20.0%, but the ROI must reflect the new asset level.

Question 12

Sales $1,200,000; variable costs $720,000; fixed costs $300,000; average operating assets $500,000. ROI?

  1. 96%
  2. 15%
  3. 40%
  4. 36% (correct answer)
Explanation: First find net operating income: sales 1,200,000 - variable costs 720,000 = 480,000 contribution margin; then subtract fixed costs 300,000 = 180,000. ROI = 180,000 / 500,000 = 36%. The tempting 96% comes from dividing contribution margin 480,000 by operating assets and forgetting fixed costs.

Question 13

ROI fell from 20% to 15%; profit margin stayed at 5%. What happened to asset turnover?

  1. Turnover rose 3 to 4
  2. Turnover fell 4 to 3 (correct answer)
  3. Turnover stayed at 4
  4. Turnover stayed at 3
Explanation: ROI equals profit margin times asset turnover. With margin fixed at 5%, divide each ROI by 5%: 20% / 5% = 4, and 15% / 5% = 3. So asset turnover fell from 4 to 3. The tempting error is thinking turnover rose from 3 to 4 because ROI fell, but a lower ROI with the same margin means lower turnover, not higher.

Question 14

Price rises 10%; volume, total costs, and average operating assets are unchanged. What happens to ROI components?

  1. Margin and ROI rise
  2. Turnover and ROI rise
  3. All three ratios rise (correct answer)
  4. ROI direction unknown
Explanation: Price up with volume unchanged means sales rise while total costs stay fixed. So net operating income rises and margin (NOI / sales) rises. Average operating assets are unchanged, so turnover (sales / assets) also rises. ROI = margin x turnover, so it rises too. The tempting error is picking margin and ROI only: turnover rises as well, not stays flat.

Question 15

Profit margin 12%, sales $1,000,000, average operating assets $400,000. Asset turnover and ROI?

  1. 0.4 and 12%
  2. 2.5 and 12%
  3. 2.5 and 30% (correct answer)
  4. 0.4 and 30%
Explanation: Net income is 12% of $1,000,000, or $120,000. Asset turnover is $1,000,000 divided by $400,000, or 2.5. ROI is $120,000 divided by $400,000, or 30%, which also equals 12% times 2.5. The tempting mistake is keeping 12% as ROI, but that's the profit margin, not the return on invested assets.

Question 16

Profit margin 8%, asset turnover 2.5, average operating assets $300,000. What is operating income?

  1. $60,000 (correct answer)
  2. $24,000
  3. $750,000
  4. $31,500
Explanation: Asset turnover of 2.5 means every $1 of assets generates $2.50 in sales, so sales are 2.5 times $300,000 = $750,000. Operating income is 8% of sales: 0.08 times $750,000 = $60,000. The tempting $24,000 wrongly applies the 8% margin directly to assets instead of to sales.

Question 17

A division manager can choose between two depreciation methods for a new asset: straight-line or an accelerated method. The asset has a 5-year life and no salvage value. In the first year of the asset's life, how would the choice of the accelerated method over the straight-line method affect the division's profit margin and asset turnover, assuming all other factors remain constant?

  1. Lower profit margin, higher asset turnover. (correct answer)
  2. Higher profit margin, lower asset turnover.
  3. Lower profit margin, lower asset turnover.
  4. Higher profit margin, higher asset turnover.
Explanation: In the first year, accelerated depreciation results in higher depreciation expense than straight-line. \n* Profit Margin (Operating Income / Sales): Higher expense leads to lower operating income. With sales unchanged, profit margin will be lower. \n* Asset Turnover (Sales / Average Assets): Higher first-year depreciation leads to a lower end-of-year book value for the asset. This results in lower average operating assets for the year. With sales unchanged and a smaller denominator, asset turnover will be higher.

Question 18

The West Division of Global Corp. has a return on investment (ROI) of 25%. The division manager is considering a new project that is expected to increase sales by $200,000 and operating income by $16,000, while requiring an additional investment in operating assets of $80,000. What would be the effect on the division's overall ROI if the project is accepted?

  1. Increase, because any project with a positive operating income will increase overall ROI.
  2. Decrease, because the project's return on investment is lower than the division's current ROI. (correct answer)
  3. Remain unchanged, because the project's profit margin is equal to the division's current profit margin.
  4. Increase, because the project's return on investment is positive.
Explanation: To determine the effect on the division's overall ROI, the ROI of the new project must be calculated and compared to the division's current ROI. The project's ROI is its expected operating income divided by the additional investment: $16,000 / $80,000 = 20%. Since the project's ROI of 20% is less than the division's current ROI of 25%, accepting the project will pull the division's overall ROI down.

Question 19

The Industrial Division of a conglomerate provides the following data for the year: Sales $10,000,000; Operating Income $1,200,000; Total Assets (beginning) $7,000,000; Total Assets (ending) $9,000,000. Total assets at year-end include a parcel of land held for investment, valued at its purchase price of $1,000,000. This land was purchased on the last day of the year. The beginning total assets did not include this land. Calculate the division's return on investment (ROI).

  1. 13.3%
  2. 15.0%
  3. 16.0% (correct answer)
  4. 17.1%
Explanation: ROI is based on operating assets. The land held for investment is a non-operating asset and should be excluded.
  1. Beginning operating assets = $7,000,000.
  2. Ending operating assets = Ending total assets - Non-operating assets = $9,000,000 - $1,000,000 = 8,000,000.\n3.Averageoperatingassets=(8,000,000. \n3. Average operating assets = (7,000,000 + $8,000,000) / 2 = $7,500,000. \n4. ROI = Operating Income / Average Operating Assets = $1,200,000 / $7,500,000 = 0.16 or 16.0%.

Question 20

A division has a profit margin of 10% and an asset turnover of 1.5. The division manager is considering purchasing a new piece of equipment for $100,000 cash. The equipment is expected to generate additional annual sales of $80,000 and have additional annual operating expenses of $68,000. What is the effect on the division's profit margin and asset turnover?

  1. Profit margin will increase and asset turnover will decrease. (correct answer)
  2. Profit margin will decrease and asset turnover will increase.
  3. Both profit margin and asset turnover will increase.
  4. Both profit margin and asset turnover will decrease.
Explanation: Compare the components of the new project to the division's existing components.
  1. Project's additional operating income = $80,000 (sales) - $68,000 (expenses) = $12,000.
  2. Project's profit margin = $12,000 / $80,000 = 15%. Since the project's margin (15%) is higher than the division's current margin (10%), it will increase the overall profit margin.
  3. Project's asset turnover = $80,000 (sales) / $100,000 (assets) = 0.8. Since the project's turnover (0.8) is lower than the division's current turnover (1.5), it will decrease the overall asset turnover.