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Fairchild Garden Supply expects $700 million of sales this year, and it forecasts a 15% increase for next year. The CFO uses this equation to forecast inventory requirements at different levels of sales: Inventories = $30.2 + 0.25(Sales). All dollars are in millions. What is the projected inventory turnover ratio for the coming year?

Respuesta :

ahmedgodtrust

Answer:

Forecast sales = 115% x $700 million = $805  million

Inventory = $30.2 million + .25($805 million) = $231.45 million

Inventory turnover = Forecast sales/Inventory

                               = $805 million/$231.45

                               = 3,48 times

Explanation:

Inventory turnover is the ratio of sales to inventory. Inventory is $231.45 million while forecast sales is $805 million. The division of sales by inventory gives inventory turnover.

Cricetus

For the coming years, the projected inventory turnover ratio is "3.48". A complete solution is below.

According to the question,

Sales,

= [tex]700\times 1.15[/tex]

= [tex]805[/tex] ($)

Required inventories,

  • = [tex]30.2+0.25[/tex] (Sales)

Required inventories,

  • = [tex]30.2+0.25[/tex] ($805)

Required inventories,

  • $231.45

hence,

The projected inventory ratio of turnover will be:

= [tex]\frac{805}{231.45}[/tex]

= [tex]3.48[/tex]

Thus the above solution is right.

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