# Question: Charlie’s Cycles Inc. has \$90 million in sales

## Description

Question:
Charlie’s Cycles Inc. has \$90 million in sales. The company expects that its sales will increase 8% this year. Charlie’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 = 6 + 0.1410(Sales)

a. Given the estimated sales forecast and the estimated relationship between inventories and sales, what are your forecasts of the company’s year-end inventory level? Enter your answer in millions. For example, an answer of \$25,000,000 should be entered as 25. Round your answer to two decimal places.
\$  ________ million?

b. What are your forecasts of the company’s year-end inventory turnover ratio? Do not round intermediate calculations. Round your answer to two decimal places.

________?

a). Solution:-

Expected sales during the year = 90 Million + 8 % of 90 Million

= 90 Million + 7.2 Million

= \$ 97.20 Million

Year-end inventory level = 6 + 0.1410 * 97.20

= 6 + 13.7052

= \$ 19.7052 Million. (Rounded off to \$ 19.71 million approx.)

Conclusion:- Forecasted year end inventory level of company = \$ 19.71 million (approx).

b). Solution:-

inventory level of company at the beginning of year = 6 + 0.1410 * 90

= 6 + 12.69

= \$ 18.69 Million.

Average inventory of company = (18.69 + 19.71) / 2

= 38.40 / 2

= \$ 19.20 Million.

Inventory turnover ratio = Sales / Average inventory.

= 90 million / 19.20 million

= 4.69 times (approx)

Conclusion:- inventory turnover ratio of company = 4.69 Times (approx).

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