Question

12.2

Sales forecasts.

For the prior three​ years, sales for California Cement Company have been $19,957,000 (2011),

$21,003,000 (2012), and $22,956,000 (2013). The company uses the prior two​ years' average growth rate to predict the coming​ year's sales.

1. What were the sales growth rates for 2012 and​ 2013?
2. What is the expected sales growth rate using a​ two-year average for​ 2014? What is the sales forecast for​2014?
3. What was the sales growth rate for​ 2012?

Answer 1

- Sales for year 2011(S1) = $19,957,000

- Sales for year 2012(S2) = $21,003,000

- Sales for year 2013(S3) = $22,956,000

Calculating the Sales Growth rates for 2012 and 2013:-

- Sales Growth rate for 2012 = (S2 - S1)/S1

= ($21,003,000 - $19,1957,000)/$19,1957,000

= 5.24127%

- Sales Growth rate for 2013 = (S3 - S2)/S2

= ($22,956,000 - $21,003,000)/$21,003,000

= 9.29867%

b). Average sales growth of 2014 = (Sales Growth of 2012 + Sales Growth of 2013)/2

= (5.24127% + 9.29867%)/2

= 7.26997%

So, Expected Sales Growth of 2014 using 2-year avearge is 7.26997%

- Sales forecast for 2014 = Sales of 2013*(1+Average sales growth of 2014 )

= $22,956,000*(1+7.26997%)

= $24,624,894