Sales Cost of goods sold Variable expenses Fixed expenses Inventory Accounts rec

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Sales Cost of goods sold Variable expenses Fixed expenses Inventory Accounts receivable Other current assets Fixed assets Values $32,000,000 $20,000,000 $ 4,000,000 $ 6,000,000 s 8,000,000 S 4,000,000 S 3,000,000 S 6.000,000 st h. What is the net profit margin for this firm? a. b. c. d. What is the asset turnover? What is the return on assets? What is the size of the total assets used by the firm? 2· For the prior question, management wants to double the return on assets, without affecting sales, cost of goods sold, variable expenses, fixed expenses, or fixed assets. Rather it wants to focus on either inventory or accounts receivable. a. Can management focus on either inventory reductions or accounts receivable reductions alone? How can it achieve this objective? b. Do you see any downsides in pursuing this objective through a focus on inven- c. tory/accounts receivable reductions? You are the operations manager for a small kayak and canoe manufacturer (Valley Kayaks) located on the Pacific Northwest (Oregon). Lately your company has expe- rienced product quality problems. Simply put, the kayaks that you produce occasion- ally have defects and require rework. Consequently, you have decided to assess the impact of introducing a total quality management (TOM) program. After discussing the potential effects with representatives from marketing, finance, accounting, and quality, you arrive at a set of estimates (contained in the following table). Top man- agement has told you that it will accept any proposal that you come up with, provided 3. 47

Explanation / Answer

As per policy, only one question is allowed to answer at a time, so answering problem 3 here :

Problem 3) Category Estimated Impact of TQM Sales 2100000 COGS 1500000 Variable expenses 275250 Fixed expenses 100000 Inventory 225000 Accounts receivable 100000 Other current assets 500000 Fixed assets 400000 Total assets 1225000 Contribution 324750 Sales - all variable expenses Income 224750 Return on assets 0.18 18% Yes we will proceed further with the proposal to improve quality. This is because the return on total assets is 18% > 15%.

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