Question

Larry's Farm Equipment Store has been in business for several years. The firm's owners have described the store as a "high-price, high-service" operation that provides lots of assistance to its customers. Margin has averaged a relatively high 25% per year for several years, but turnover has been a relatively low 0.6 based on average total assets of $1,200,000. A discount Farm Equipment Store is about to open in the area served by Larry's, and management is considering lowering prices to compete effectively. 11.value: 0.83 pointsRequired information Required: a. Calculate current sales and ROI for Larry's Farm Equipment Store. (Round your "ROI" to 1 decimal place. (e.g., 32.1)) b. Assuming that the new strategy would reduce margin to 20%, and assuming that average total assets would stay the same, calculate the sales that would be required to have the same ROI as Larry's currently earns. (Do not round your intermediate calculations.) c. Suppose you presented the results of your analysis in parts a and b of this problem to Larry, and he replied, "What are you telling me? If I reduce my prices as planned, then I have to practically double my sales volume to earn the same return?" Given the results of your analysis, what is the actual amount of increase in sales required? (Do not round your intermediate calculations.) d. Now suppose Larry says, "You know, I'm not convinced that lowering prices is my only option in staying competitive. What if I were to increase my marketing effort? I'm thinking about kicking off a new advertising campaign after conducting more extensive market research to better identify who my target customer groups are." In general, explain to Larry what the likely impact of a successful strategy of this nature would be on margin, turnover, and ROI. 011

What are the other alternative strategy that might help Larry maintain the competitiveness of his business. (Select all that apply.)

Increase in selling price

Labor saving strategies

Reduction in inventory carrying costs

Answer 1

Requirement a
	Calculation of Current sales & ROI
	Current sales =		$1,200,000*0.6
		=	$720,000
	Margin	=	$720,000*25%
		=	$180,000
	ROI	=	$180,000/$1,200,000%
		=	15	%
Requirement b
	Calculation of sales with New strategy
	Larry current earns $180,000
	Now if we assume new margin to be 20%
	And our ROI is			15	%
	Our new Sales would be as follows
		=	180000*100/20
		=	900000
Requirement c
	As per our analysis, the actual amount of
	increase in sales required is as follows
	New sales			900000
	Current sales			720000
	Difference(increase required)			180000
Requirement d
	If Larry's strategy is successful, there will be
	increase in the margin, turnover and ROI
	provided the cost of advertising compaign
	should be lower than increase in margin if any
The other alternative stretegy that might helps are given below
1	Increase in selling price provided that customer
	does not resort to competitors who might have
	lower price compared to ours.
2	Labor Saving strategy can help in cost reduction
	and thus lowering the sales price while maintaining
	the same current ROI
3	Reduction in Inventory carrying costs is also a
	cost reduction techniqes which can help the firms
	becomes competitive.