Question

Accounts receivable are too high for Branch A in Exhibit 12.16. One sales analyst recommends giving credit and collection responsibilities to the sales force. Sales reps would be provided with delinquency objectives aimed at reducing accounts receivables by 20 percent. Those meeting their objectives would earn an additional 1 percent of sales for commission. Will this work? Another analyst contends that since the sales force has no training in credits and collections, accounts receivable should be excluded from ROAM calculations. Do you agree? What would happen to Branch A's ROAM if accounts receivable were excluded?

Answer 1

I agree with the second analyst. Sales persons are not trained in collections, and incentivizing them to decrease days sales outstanding may not give positive results.  

If accounts receivable were excluded, ROAM would increase as accounts receivable would be excluded from branch investments.

Branch A ROAM = 250,000 / 750,000 = 33.33%

Branch B ROAM = 95,000 / 225,000 = 42.22%