She has also given the information in the following table


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 sea- sonal 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 (top next page). How would you assess this proposal from marketing? Would the projected change in ROA justify the inventory investment?

 

Category

Current Values

Proposed Impact of Inventory Increase

Sales

$2,000,000

25% 1 (improvement)

Cost of goods sold

$1,500,000

0%

Variable expenses

$   300,000

10% 2 reduction (why?)

Fixed expenses

$   100,000

15% 1 (increase)

Inventory

$   300,000

25% 1

Accounts receivable

$   100,000

0%

Other current assets

$   500,000

0%

Fixed assets

$   400,000

0%

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Marketing Research: She has also given the information in the following table
Reference No:- TGS01189504

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