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 $2,500 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 strategies:
(1) 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. Category Current Values Lean Proposal Innovation
Proposal Sales $ 13,050,000 $ 13,050,000 $ 16,965,000
Cost of goods sold $ 11,092,500 $ 9,428,625 $ 12,723,750
Variable expenses $ 783,000 $ 704,700 $ 848,250
Fixed expenses $ 783,000 $ 665,550 $ 783,000
Inventory $ 1,305,000 $ 1,017,900 $ 1,696,500
Accounts receivable $ 744,000 $ 632,400 $ 744,000
Other current assets $ 717,000 $ 717,000 $ 824,550
Fixed assets $ 870,000 $ 870,000 $ 870,000
a. What is Noble Bicycles' current ROA? (Round your answers to 2 decimal places.)