Problem 17-11 Regression and inventories Charlie\'s Cycles Inc. has $100 million

Question

Problem 17-11
Regression and inventories

Charlie's Cycles Inc. has $100 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 = 6 + 0.0815(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

Revised answer

              107,000,000

Charlie's Cycle Details Amt $ Previous sales    100,000,000 Expexted growth 7% Expected sales this year    107,000,000 Inventory formula =6 +0.0815*sales Exxpected year end inventory                   8.72 Million Year end inventory turover ratio= Sales/Inventory                 12.27

Revised answer

Sales               100,000,000 Increased sales

              107,000,000

increased sales 107 million Inventory =6+0.0815 =6+0.0815*107=                      14.72 Inventory =14.72 milliom Inventroy TO =107/14.72 =                        7.27

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