Question

Kamath-Meier Corporation's CFO uses this equation, which was developed by regressing inventories on sales over the past 5 years, to forecast inventory requirements: Inventories = $22.0 + 0.125(Sales). The company expects sales of $300.0 million during the current year, and it expects sales to grow by 32% next year. What is the inventory forecast for next year? All dollars are in millions.

Answer 1

Answer:

$71.5

Explanation:

Inventory forecast is a way of predicting the volume of inventory required to fulfill future orders based on the existing production capacity and other plans relating to production

equation for forecasting inventory = $22 + 0.125 sales

Current sales = $300 million

Annual sales growth rate =32%

sales for next year = 300 + (300*32%)

300 + 96= $396 million

Applying the equation

Inventory = $22 + (0.125*396)

$22 + $49.5 = $71.5 million