Misusing
the percent of sales
method?)
The Caraway Seed Company has grown rapidly over the last decadeand is trying to forecast the? firm's inventory requirements forthe next 5 years. Historical sales and inventories for the last 10years are found in the popup? window,
YEAR | | SALES | INVENTORIES | |
2005 | | ?$5,250,000 | | ?$1,590,924 | |
2006 | | 6,200,000 | | 1,724,221 | |
2007 | | 6,940,000 | | 1,899,573 | |
2008 | | 5,650,000 | | 1,530,054 | |
2009 | | 6,255,000 | | 1,772,059 | |
2010 | | 7,100,000 | | 1,919,042 | |
2011 | | 7,350,000 | | 2,010,025 | |
2012 | | 8,010,000 | | 2,006,023 | |
2013 | | 8,775,000 | | 2,292,119 | |
2014 | | 10,390,000 | | 2,537,486 | |
2015 | | 11,500,000 | | | |
2016 | | 12,000,000 | | | |
2017 | | 12,500,000 | | | |
2018 | | 13,000,000 | | | |
2019 | | 13,500,000 | | |
?, along with projected sales for the next 5 years.
a. Use the percent of sales method for forecasting? Caraway'sinventories for the next 5 years if the percent of sales is equalto the average of the percent of sales for the last 10 years.
b. The following? graph, includes a plot of the historicalrelationship between inventories and sales along with a linerepresenting the percent of sales forecast. Analyze the forecastline compared to the plot of inventory and sales to see if you seeany problems with the percent of sales forecast. Discuss.
a. Using the average of the percent of sales for the last 10?years, what are the projected inventories for? 2015?
?$nothing
? (Round to the nearest? dollar.)
Using the average of the percent of sales for the last 10?years, what are the projected inventories for? 2016?
?$nothing
? (Round to the nearest? dollar.)
Using the average of the percent of sales for the last 10?years, what are the projected inventories for? 2017?
?$nothing
? (Round to the nearest? dollar.)
Using the average of the percent of sales for the last 10?years, what are the projected inventories for? 2018?
?$nothing
? (Round to the nearest? dollar.)
Using the average of the percent of sales for the last 10?years, what are the projected inventories for? 2019?
? (Round to the nearest? dollar.)
b. The following graph includes a plot of the historicalrelationship between inventories and sales along with a linerepresenting the percent of sales forecast.
Analyzing the forecast line compared to the plot of? inventory,did you see any problems with the percent of sales?forecast????(Select the best choice? below.)
A.
?No, the percent of sales line perfectly forecasts inventorylevels becuase the relationship between the two variables is verynearly linear.
B.
?Yes, the percent of sales line under forecasts inventory levelsfor low levels of sales and begins to over predict them for higherlevels.
