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 $550.0 million during the current year,and it expects sales to grow by 33% next year.What is the inventory forecast for next year? All dollars are in millions.

Question

Quizplus · Accepted Answer

First, we need to find the inventory forecast for the current year:
Inventories = $22.0 + 0.125(Sales)
Inventories = $22.0 + 0.125($550.0)
Inventories = $88.5 million

Next, we can use the projected sales growth rate of 33% to find the inventory forecast for next year:
Next year's sales = $550.0 million + ($550.0 million * 0.33) = $731.5 million
Inventories = $22.0 + 0.125(Sales)
Inventories = $22.0 + 0.125($731.5)
Inventories = $113.4 million

Therefore, the inventory forecast for next year is $113.4 million, which corresponds to choice (D).

Kamath-Meier Corporation's CFO Uses This Equation,which Was Developed by Regressing