You are unsure what level of sales to forecast for your new drugstore, which you

Question

You are unsure what level of sales to forecast for your new drugstore, which you plan to open on New Year's Day. Consequently, you have decided to make some assumptions. You believe that it is reasonable to assume that your trade area will encompass about 25 square miles. The city planning department has told you that within this area the population density is 1,157 people per square mile. You conservatively estimate that 40 percent of these individuals will visit your store an average of 4 times annually and that 85 percent will purchase something on a typical visit. You expect them to purchase and average of $25 per visit. Information from industry sources suggests that drugstores do more business in the fall and winter. In fact, you expect sales during each of the months of November, December, January, and February to be 10 percent of your annual volume. The remaining eight months will share equally the 60 percent of the remaining sales. You believe that for your business to be profitable, you will need a beginning of the month inventory -to-sales ratio of 3.0 for October through November and 2.5 for the remaining months. You also want to begin the first month of your second year of business with $ 250,000.00 in inventory at retail prices. Please compute the beginning of the month inventory for each of the next 12 months

Explanation / Answer

25*1157= the population 25*1157*.4= the population that will visit your store 25*1157*.4*4=the # of visits you can expect in a year 25*1157*.4*4*.85= the # of visits you can expect in a year that will end in a sale 25*1157*.4*4*.85*25= $ of sales in a year= 983,450 983450*.1= sales for nov,dec,jan,feb= 98,345 983450*.6/8=sales for each of the other 8 months= 73,758.75 month inventory jan 250,000 feb 98345*2.5= 245,862.50 mar 73,758.75*2.5= 184,396.88 apr 73,758.75*2.5= 184,396.88 may 73,758.75*2.5= 184,396.88 jun 73,758.75*2.5= 184,396.88 jul 73,758.75*2.5= 184,396.88 aug 73,758.75*2.5= 184,396.88 sep 73,758.75*2.5= 184,396.88 oct 73,758.75*3= 221,276.25 nov 98345*3= 295,035 dec 98345*2.5= 245,862.50

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