Inventory and Accounts Receivable Turnovers. The president of Oberlin Stores, Charles Gaa, notes that collection of accounts receivable should be improved. He proposes that inducements be given to customers to pay promptly. This, he argues, will increase costs somewhat; but, in the final analysis, the rate of return should increase. Also, he believes that the company is holding a larger inventory than necessary and can improve the rate of return by inventory reduction.

Financial data for last year are summarized as follows along with a budget for next year as prepared by the controller:

\section*{Required:}
1. Find the following relationships for last year and the budget year:

(a) Return on sales and return on assets.

(b) Accounts receivable turnover and inventory turnover.
2. What impacts could you imply resulted from the changes?

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Net sales. Cost of goods sold Operating expenses Total... Income before income taxes Income taxes.. Net income Last Year Budget Year $4,200,000 $6,000,000 $3,000,000 $4,500,000 500,000 650,000 $3,500,000 $ 700,000 300,000 $ 400,000 $5,150,000 $ 850,000 380,000 $ 470,000