he following information applies to the questions displayed below.) Kenneth Wash
ID: 2581985 • Letter: H
Question
he following information applies to the questions displayed below.) Kenneth Washburn, head of the Sporting Goods Division of Reliable Products, has just completed a miserable nine months. "If it could have gone wrong, it did. Sales are down, income is down, inventories are bloated, and quite frankly, l'm beginning to worry about my job," he moaned. Washburn is evaluated on the basis of ROl. Selected figures for the past nine months follow $ 8,900,000 534,000 11,125, 000 Sales Operating income Invested capital In an effort to make something out of nothing and to salvage the current year's performance, Washburn was contemplating implementation of some or all of the following four strategies a. Write off and discard $107,000 of obsolete inventory. The company will take a loss on the disposal b. Accelerate the collection of $137,000 of overdue customer accounts receivable c. Stop advertising through year-end and drastically reduce outlays for repairs and maintenance. These actions are expected to save the division $242,000 of expenses and will conserve cash resources. d. Acquire two competitors that are expected to have the following financial characteristics Projected Operating Expenses $3,770,000 6,520,000 Projected Invested Capital $10,700,000 9,500,000 Projected Sales Anderson Manufacturing 4,840,000 Palm Beach Enterprises 7,090,000Explanation / Answer
1A)
*)Sales margin states profit (operating income) in terms of percentage of sales revenue.OR what percentage of profit earned from the stated sales.
*)Capital turnover ratio refers what times of turnover earned from the capital invested.OR how much of turnover can get from the stated capital.
*)Return on investment states operating income in terms of average invested assets percentage.OR how much of operating income can get from the stated assets.
1B)
*)Sales Margin = Operating income ÷sales
operating income =534000
sales=8900000
sales margin =534000÷8900000=.06 or 6%
*)Capital turnover = sales÷invested capital
sales =8900000
capital invested =11125000
capital turnover =8900000÷11125000=.8 or 80%
*)Return on investment (ROI) = operating income ÷investment
operating income =534000
investment =11125000
ROI =534000÷11125000=.048 or 4.8%
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