Question

Forecasting

inventories​)

Findlay Instruments produces a complete line of medical instruments used by plastic surgeons and has experienced rapid growth over the past 5 years. In an effort to make more accurate predictions of its financing​ requirements, Findlay is currently attempting to construct a​ financial-planning model based on the percent of sales forecasting method.​ However, the​ firm's chief financial analyst​ (Sarah Macias) is concerned that the projections for inventories will be seriously in error. She recognizes that the firm has begun to accrue 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
2011	​$15,000	​$1,150	7.67%
2012	18,000	1,180	6.56%
2013	17,500	1,175	6.71​%
2014	20,000	1,200	6.00​%
2015	25,000	1,250	5.00%
			Average 6.39%

b. Estimate firm inventories fora. Plot​ Findlay's sales and inventories for the past 5 years. What is the relationship between these two​ variables?

2016, when firm sales are projected to reach

​$30 million. Use the average percentage of sales for the past 5​ years, the most recent percentage of​ sales, and your evaluation of the true relationship between the sales and inventories from part a to make three predictions.

b. Use the average percentage of sales for the past 5 years to make the prediction. What are the​ firm's projected inventories for 2016 when the sales are projected to reach ​$30 ​million?

​(Round to the nearest​ dollar.)

Use the most recent percentage of sales to make the prediction. What are the​ firm's projected inventories for

2016 when the sales are projected to reach ​$30 ​million?

Use your evaluation of the true relationship between the sales and inventories from part a to make the prediction. What are the​ firm's projected inventories for 2016 when the sales are projected to reach ​$30 million?

Answer 1

Projection for the year of 2016

YEAR	SALES​ ($000)	INVENTORY​ ($000)	​% OF SALES
2011	​$15,000	​$1,150	7.67%
2012	18,000	1,180	6.56%
2013	17,500	1,175	6.71​%
2014	20,000	1,200	6.00​%
2015	25,000	1,250	5.00%
2016	3,000,000	3,000,000*6.39/ 100 = 191700	Average 6.39%

so the projected inventory for 2016 is $ 191,700