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As the operations manager for Valley Kayaks (as described in the previous problem), you find yourself faced with an interesting situation. Marketing has informed you
As the operations manager for Valley Kayaks (as described in the previous problem), you find yourself faced with 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 20 percent (a major investment to you). She has also given the information in the following table. Use Figure 2.3. Category Sales Cost of goods sold Variable expenses Fixed expenses Inventory Accounts receivable Other current assets Fixed assets 0000000 Current Values $ 5,390,000 $ 3,850,000 $ 770,000 269,500 315,000 350,000 $ 741,000 444,000 Proposed Impact of Inventory Increase 20% + (improvement) 0% 20% - reduction 10% + (increase) 20% + 0% 0% 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.) New Values Category Sales Cost of goods sold Variable expenses Fixed expenses Inventory Accounts receivable Other current assets Fixed assets ROA Current Values $ 5,390,000 3,850,000 770,000 269,500 315,000 350,000 741,000 $ 444,000 % % b. Would the projected change in ROA justify the inventory investment? Yes No
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