Noble Bicycles of Glen Arbor, Michigan, is a small batch manufacturer of high-en

Question

Noble Bicycles of Glen Arbor, Michigan, is a small batch manufacturer of high-end bicycles. That is, it typically builds bicycles in batches of one to three units. Quality is high, only to be expected when the typical bicycle frame costs $2,700 and up. Yet,profits have not kept pace with top management's expectations. Management has set a goal of generating a minimum of 25 percent return on assets. As a result of a corporate SWOT analysis, management has identified one critical threat: the costs at Noble are simply too high-and one important opportunity: because of the flexibility of operations and the experience of the design team, many of whom are either professional or serious amateur bicyclists, Noble is well positioned to become an innovation leader.A top management team consisting of the marketing director, finance director, the corporate vice president, the purchasing director, and the director of operations management has developed two alternative strategies1) focus on reducing costs through the application of lean systems and procedures, and (2) focus on product innovation. To assess the two approaches, the team generated the following table Use Figure 23 Ure 239 Lean Proposal $12,850,000 12,850,000 S 16,062,500 $ 10,922,500 $ 9,284,125 S 12,046,875 $771,000 693,900 S 803,125 $771,000 $ 655,350 S 771,000 $ 1,285,000 $963,750 S 1,606,250 $ 843,000 $ 716,550 S 843,000 $858,000 $858,000 S986,700 $ 642,000 642,000 S 642,000 Category Values 0 Cost of goods sold Variable expenses Fixed expenses 6 Accounts receivable Other current assets Fixed assets a. What is Noble Bicycles' current ROA? (Round your answers to 2 decimal places.) Categ Current Value Innovation Proposal

Explanation / Answer

Using the following formulas in excel spreadsheet

Net profit or net income = Sales - Cost of goods sold - Variable expenses - Fixed expenses

Total Assets = Fixed Assets +Current Assets +Inventory + Account recievables

Return on assets = Net income/ Total Assets

The results are as follows:

Categoy Current Values Lean proposal Innovation proposal Sales 12850000 12850000 16062500 Cost of goods sold 10922500 9284125 12046875 Variable expense 771000 693900 803125 Fixed expense 771000 655350 771000 Net income 385500 2216625 2441500 Inventory 1285000 963750 1606250 Account receivables 843000 716550 843000 Other current assets 858000 858000 986700 Fixed Assets 642000 642000 642000 Total Assets 3628000 3180300 4077950 ROA 10.63% 69.70% 59.87%

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