FORECASTING INVENTORIES Findlay Instruments produces a complete line of medical
ID: 2761683 • Letter: F
Question
FORECASTING INVENTORIES
Findlay Instruments produces a complete line of medical instruments used by plastic surgeons and has expereienced rapid growth over the past 5 years. In an effort to make more accurate predictions fo its financing requirements, Findlay is currently attempting to construct a financial-planning model based on the % of sales forecasting method. However, the firms cheif financial analyst is concerned that the projections for inventories will be seriously in error. She recongnizes that hte firm has begun to accure substantial economies of scale in its inventory investment and has documented this fact in the following data and calculations:
YEAR SALES ($000) INVENTORY ($000) % OF SALES
2008 16,000 1,230 7.69%
2009 19,000 1,250 6.58%
2010 18,500 1,240 6.70%
2011 21,000 1,260 6.00%
2012 26,000 1,300 5.00%
AVERAGE % OF SALES 6.39%
A-WHAT IS THE RELATIONSHIP BETWEEN THE 2 VARIALBLES INVENTORY & SALES) choose below A-E
a- Hyperbolic function b-Parabolic function c-Logarithmic cylinder function d-Exponential function e- Linear function
B-USE THE AVERAGE % OF SALES FOR THE PAST 5 YEARS TO MAKE THE PREDICATION. wHAT ARE THE FIRMS PROJECTED INVENTORES FOR 2013 WHEN THE SALES ARE PROJECTED TO REACH $20 MILLION? $ ______________ ROUND TO THE NEAREST DOLLAR.
C-USE THE MOST RECENT % OF SALES TO MAKE THE PREDICTION. WHAT ARE THE FIRMS PROJECTED INVENTORIES FOR 2013 WHEN THE SALES ARE PROJECTED TO REACH $20 MILLION? $_________________ ROUND TO THE NEAREST DOLLAR.
D-USE YOUR EVALUATION OF THE TURE RELATIONSHIP BETWEEN THE SALES AND INVENTORES FROM PART A TO MAKE THE PREDICTION. WHAT ARE THE FIRMS PRJECTED INVENTORIES FOR 2013 WHEN THE SALES ARE PROJECTED TO REACH $20 MILLION? $__________________ ROUND TO THE NEAREST DOLLAR.
Explanation / Answer
Answer A) e- Linear function
Its a linear equation becuase the there is a relation between the perentage of inventory to sales.
B)
Total sales = $ 20,000,000 , percentage of average inventory = 6.39%
Inventory = $ 1.278 million or $ 1,278,000
C)
Total sales = $ 20,000,000 , percentage of most recent inventory = 5%
Inventory = $ 1 million or $ 1,000,000
D)
The trend of the % inventory is declining. so it would be less than 5% in 2013. Somwhere around 4.85%
Total sales = $ 20,000,000 , percentage of inventory = 4.85%
Inventory = $ 9.7 million or $ 970,000
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