Given the following information:

A) Show how management can use cost/revenue trade-offs to help determine whether customer service levels should be increased from 90% to 97% in-stock availability, and

B) Comment on the anticipated effect a change in customer service level would have on ROA.

Annual sales are currently $75 million.

The profit margin on the companys products averages 23% of the selling price.

Inventory levels would increase by $1.5 million.

Inventory carrying cost as a percentage of inventory value is 10%.

Investment in warehouse equipment of $175,000

Transportation costs would increase by $200,000.

Warehousing variable costs would increase by $100,000

Current ROA is 12%.