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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 tha 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 Elgure 2.3 Proposed Impact of Inventory Category Current Values Increase $ 4,900,000 20% (improvement) Cost of goods sold $ 3,500,000 ON Variable expenses 700,000 10% - reduction Fived expenses $ 245.000 15% (increase) Inventory $ 320,000 20% Accounts receivable $ 174.000 0% Other current assets 747,000 0% Fored assets 675,000 0% Sales S $ 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.) Current Values New Values $ Category Sales Cost of goods sold Variable expenses Fixed expenses Invertory Accounts receivable Other current assets Fixed assets ROA 4,900,000 3,500,000 700,000 245,000 320,000 174.000 747.000 675,000 96 $ % b. Would the projected change in ROAjustly the inventory investment? Yes No
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