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Problem for Strategic Profit Model Assignment

Week 5

Dog-Ann is a pet supplies company serving in Midwest. It sells pet supplies and provides pet grooming and training services. Table 1 shows the income statement of Dog-Ann for the previous year.

Sales	$250,000
Cost of Goods	$150,000
Fixed Assets	$105,000
Variable Expenses	$25,000
Fixed Expenses	$35,000
Inventory	$10,000
Accounts Receivable	$5,000
Other Current Assets	$5,000

a) Develop the strategic profit model of this organization and draw the diagram.

b) What is the firms profit margin?

c) What is the firms ROA

Suppose the firm undertakes a supply chain improvement project. It improves its service level to customers by opening more warehouses which means it will be able to deliver more quickly to customers. The result is a 10% increase in sales. Assume cost of goods sold increases by 6%. The new warehouse requires additional new asset investment of $40,000. Fixed expenses increase by $1,000 because of the expense of operating the warehouses. Assume other variables do not change. Answer the following three questions based on this information.

c) Show the new strategic profit model.

d) What is the new asset turnover?

e) What is the firms new return on assets?