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.
$ ________ million

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

Explanation / Answer

Inventories is given by the equation,

Inventories = $30+0.115(Sales)

Forecasted Sales = 350 million * 108% = 378 million

Hence, forecasted year end inventory = 30 + 0.115(378)

= 73.47 million

Inventory Turnover Ratio (Forecasted) = Sales/Average Inventory = 378/71.86 = 5.26 times

Opening Inventory = 30+0.115(350) = 70.25

Therefore, Average Inventory = 71.86 million

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