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 Current Values $ 4,270,000 $ 3,050,000 $ 610,000 $ 213,500 $ 528,000 $ 192,000 $ 780,000 $ 450,000 Proposed Impact of Inventory Increase 20% improvement 0% 10% 15% 20% 0% 0% 0% reduction increase increase a. Using the information given, complete the following table and calculate the ROA for current values and new values. b. Would the projected change in ROA justify the inventory investment?
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 Current Values $ 4,270,000 $ 3,050,000 $ 610,000 $ 213,500 $ 528,000 $ 192,000 $ 780,000 $ 450,000 Proposed Impact of Inventory Increase 20% improvement 0% 10% 15% 20% 0% 0% 0% reduction increase increase a. Using the information given, complete the following table and calculate the ROA for current values and new values. b. Would the projected change in ROA justify the inventory investment?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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
Current Values
$ 4,270,000
$ 3,050,000
$ 610,000
$ 213,500
$ 528,000
$ 192,000
$ 780,000
$ 450,000
Proposed Impact of
Inventory Increase
20% + improvement
0%
10%
reduction
15% + increase
20% increase
0%
0%
a. Using the information given, complete the following table and calculate the ROA for current values and new values.
b. Would the projected change in ROA justify the inventory investment?
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