REGRESSION AND INVENTORIES Jasper Furnishings has $350 million in sales. The com

Question

REGRESSION AND INVENTORIES

Jasper Furnishings has $350 million in sales. The company expects that its sales will increase 8% this year. Jasper's CFO uses a simple linear regression to forecast the company's inventory level for a given level of projected sales. On the basis of recent history, the estimated relationship between inventories and sales (in millions of dollars) is as follows:

Inventories = $30 + 0.115(Sales)

Given the estimated sales forecast and the estimated relationship between inventories and sales, what are your forecasts of the company's year-end inventory level? Enter your answer in millions. For example, an answer of $25,000,000 should be entered as 25. Round your answer to two decimal places.
$ 73.47 million

What are your forecasts of the company's year-end inventory turnover ratio? Round your answer to two decimal places.

Explanation / Answer

A. Computation of Year End Inventory Level

Regression Equation for Inventory = $30 Million + 0.115 * $350 Million * 1.08

Regression Equation for Inventory = $30 Million + $43.47 Million = $73.47 Million

B Inventory Turnover Ratio

Inventory Turnover Ratio = Sales / Inventory = $350 Million * 1.08 / $73.47 Million

Inventory Turnover Ratio = $378 Million / $73.47 Million

Inventory Turnover Ratio = 5.14

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