PLEASE ANSWER ALL QUESTIONS! Regression and inventories Charlie\'s Cycles Inc. h
ID: 2716203 • Letter: P
Question
PLEASE ANSWER ALL QUESTIONS!
Regression and inventories
Charlie's Cycles Inc. has $180 million in sales. The company expects that its sales will increase 8% this year. Charlie'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 = 12 + 0.1350(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.
$ million
What are your forecasts of the company's year-end inventory turnover ratio? Round your answer to two decimal places.
Explanation / Answer
Current Sales = $ 180 Millions
Estimated increment in Sales = 8%
Thus, Estimated Sales = 180*108% =$ 194.4 Millions
Inventory Relationship= 12+0.1350(Sales)
=12+0.1350*194.4 Million
= 38.244 Millions
Inventory turnover ratio= Turnover/Inventory
=194.4/38.244
=5.08
Thus,
(i) company's estimated year end inventory is 38.244 millions.
(ii) Inventory turnover ratio is 5.08
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