Reference no: EM132537803

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 25 percent (a major investment to you). She has also given the information in the following table. Use Figure 2.3.

CategoryCurrent ValuesProposed Impact of Inventory IncreaseSales$2,590,000 30%+ (improvement)Cost of goods sold$1,850,000 0% Variable expenses$370,000 20%- reductionFixed expenses$129,500 10%+ (increase)Inventory$396,000 25%+Accounts receivable$273,000 0% Other current assets$654,000 0% Fixed assets$672,000 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.)

b. Would the projected change in ROA justify the inventory investment?

-Yesor

-No