Question

Consider a company that has only variable costs. All other things the same, an increase in unit sales will result in no change in the return on investment. A) TRUE B) FALSE

Answer 1

The statement is FALSE because an increase in unit sales typically leads to an increase in total profits if the revenue per unit exceeds the variable cost per unit, which can increase the return on investment for a company with only variable costs.

Step-by-step explanation:

The statement that 'an increase in unit sales will result in no change in the return on investment (ROI)' is FALSE if a company has only variable costs. Whenever unit sales increase, variable costs increase as well due to the need for more variable inputs such as labor and raw materials to produce additional units. However, with each additional unit sold, the company is also generating more revenue. If the revenue per unit exceeds the variable cost per unit, the company will experience a higher total profit. Higher profits can increase the ROI, given that ROI is calculated based on earnings relative to the investment made.