Question

Pepsico's CFO uses this equation, which was developed by regressing inventories on sales over the past 5 years, to forecast inventory requirements: Inventories = $26.8 + 0.234 x (Sales). The company expects sales of $400 during the current year, and it expect sales to grow by 19% next year. What is the inventory forecast for next year? All dollar amounts are in millions.

Answer 1

The inventory forecast for next year is $ 120.4.

Step-by-step explanation:

In this question relationship between sales and inventory is expressed in the form of an equation. This problem requires us to tell the value of inventory if sales is $ 400. So we can simply calculate the inventory value by putting value of x= 400 in the equaltion given in the question.

Inventories = $26.8 + 0.234 x

Inventories = $26.8 + 0.234 ($400)

Inventories = $ 120.4

(Assume sales increase is due to increase in quantity sold not price)