Regression and inventories Charlie\'s Cycles Inc. has $90 million in sales. The
ID: 2714227 • Letter: R
Question
Regression and inventories
Charlie's Cycles Inc. has $90 million in sales. The company expects that its sales will increase 7% 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 = 13 + 0.0515(Sales)
a. 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
b. What are your forecasts of the company's year-end inventory turnover ratio? Round your answer to two decimal places.
_____________
Explanation / Answer
a)
Yearend inventory:
= $13 million+$90 million×(1+7%)×0.0515
= $17.96 million
b)
Cost of goods sold information required for inventory turnover calculation.