The sales manager of Branch A (exhibit 12.16) was dismayed with the results. The 20% of ROAM for the branch was below expectations. The sales managers proposed two strategies to improve ROAM:

1. Increase sales by at least 15%. But well have to cut prices by 7% to do this.
2. Lower inventory by 50%

What are the new ROAM if these two strategies are implemented respectively (show work)? Which strategy will benefit Branch A more and why?

ROAM = Contribution as a pulum and could si The formula indicates that the return to a segment of the business can be improved either by increasing the profit margin on sales or by maintaining the same profit margin and increasing the asset turnover rate. The formula can then ir salesperson o ailed elemen des, and assets. nagement to Branch B EXHIBIT 12.16 Analysis of return on assets managed Branch A $2,500,000 2,000,000 500,000 (20%) $1,500,000 1,275,000 225,000 (15%) Exhibit 12.17 unponent expl wing analyzed. I Sales Cost of Goods Sold Gross Margin Less Variable Branch Expenses Salaries Commissions Office expenses Travel and entertainment 155,000 25,000 30,000 40,000 250,000 250,000 80,000 10,000 20,000 20,000 130,000 95,000 KAM than Bran dat might be d sample, that the fales varies acro Receivables as a pe Branch Contribution to Profit Branch investments Accounts receivable Inventories 500,000 750,000 1,250,000 10.0% 2.0 20.0% 150,000 225,000 375,000 6.3% bventories as a per Earnings as a Percentage of Sales Turnover Branch Percentage Return on Assets Managed 2529 Management m evables or inver isting in Brand