Complete Questions and Exercises Problems 10.5-Projecting Revenue, Costs of Good

Question

Complete Questions and Exercises Problems 10.5-Projecting Revenue, Costs of Goods Sold and Inventory. Projecting Revenues, Cost of Goods Sold, and Inventory. Use the following data for Walgreens in Years 11 and 12 to project revenues, cost of goods sold, and inventory for Year +1. Assume that Walgreen's Year +1 revenue growth rate, gross profit margin, and inventory turnover will be identical to Year 12. Project the average inventory balance in Year +1 and use it to compute the implied ending inventory balance. 10.5 Walgreens (data in millions) Sales Revenues Cost of Goods Sold Ending Inventory Year 11 $ 53,762 $ 38,518 S 6,791 Year 12 S 59,034 S 42,391 S 7,249

Explanation / Answer

Walgreens (data in millions) Year 11 Year 12 Average Sates Revenues $      53,762 $      59,034 Cost of Goods Sold $      38,518 $      42,391 Ending Inventory $        6,791 $        7,249 $    7,020 Assuming the identical sales growth rate, (59034-53762)/53762 9.81% 1 Sales Revenues for year + 1 is : 59034 x 1.0981 = $64825 2 Cost of goods sold as % of sales = 38518/53762 = 72% cost of goods sold for year + 1 is: 64825 x 72% = $46674 3 Inventory turnover for year 8 = 42391/7020 = 6.04 Average inventory for Year + 1 = 46674/6.04 = $7727 Ending inventory for Year + 1 = 7727 x 2-7249 = 8205

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