24 Jul WOULD THE PROJECTED CHANGE IN ROA JUSTIFY THE INVENTORY INVESTMENT?
As the operations manager for Valley Kayaks (as described in the previous question) you find yo Show more As the operations manager for Valley Kayaks (as described in the previous question) you find yourself faced by an interesting situation. Marketing has informed you that they have lost a number of sales because of a lack of inventory. Kayaks being seasonal in nature have to be in stock at your dealers if they are to be sold (customers are not willing to wait). The director of marketing proposes that you increase inventories by 10 percent (a major investment to you). She has also given the information in the following table. Use Figure 2-5. Category Current Values Current Values Proposed Impact of Inventory Increase Sales $ 3780000 15% + (improvement) Cost of goods sold $ 2700000 0% Variable expenses $ 540000 10% ? reduction Fixed expenses $ 189000 15% + (increase) Inventory $ 440000 10% + Accounts receivable $ 282000 0% Other current assets $ 624000 0% Fixed assets $ 625000 0% a. Using the information given complete the following table and calculate the ROA for current values and new values. (Round ROA to 2 decimal places.) Category Current Values Current Values Current Values New Values New Values New Values Sales $ 3780000 $ $ $ Cost of goods sold 2700000 Variable expenses 540000 Fixed expenses 189000 Inventory 440000 Accounts receivable 282000 Other current assets 624000 Fixed assets $ 625000 $ $ $ ROA % % % % b. Would the projected change in ROA justify the inventory investment? Yes No Show less
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