Jasper Jewelry has $140 million in sales. The company expects that its sales wil

Question

Jasper Jewelry has $140 million in sales. The company expects that its sales will increase 4% 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 = $10 + 0.07(Sales)

Given the estimated sales forecast and the estimated relationship between inventories and sales, what is your forecast of the company's year-end inventory level? Round your answer to two decimal places. Do not round intermediate calculations.
$   million

Explanation / Answer

Inventories = 10 + 0.07(Sales), whrere sales (in millions of dollars).

sales = $140 million

projected sales = 4% increase of $140 million = 140 * 104 /100 = $145.6 million

So, the company's inventory level for a given level of projected sales is,

Inventories = 10 + 0.07(Sales)

= 10 + 0.07*(145.6)

= 10 + 10.192

= 20.192

So, the forecast of the company's year-end inventory level = $ 20.192 million.

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