Sylvie Faivre, sales analyst for the Bouvre Cheese Company, had completed her analysis of one of the southern districts. The district was a candidate for consolidation because management believed sales were not as expected. Sylvie suggested she should first determine the district’s return on assets managed before any decisions were made concerning territory modification. The following provides the data needed to calculate ROAM for the district:

Determine the ROAM for the district. What would happen if inventories were reduced by 20 percent? How much would sales have to increase to obtain the company average ROAM of 25 percent? Bouvre’s management believes salaries are too high and is considering a 15 percent reduction. Assuming no impact on sales, how would this affect district ROAM?

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Sales Cost of goods sold Gross margin Less variable branch expenses Salaries Commissions Office expenses Travel and entertainment District contribution to profit District investments Accounts receivable Inventories $205,000 750,000 900,000 $1,650,000 $4,500,000 4,000,000 500,000 $175,000 30,000 35,000 55,000 295,000