Assume that Zybo,Inc.has sales of $10 million and inventory of $2 million.The corporation utilises the percent-of-sales method of financial forecasting.If Zybo is expected to generate sales of $14 million next year,what will the firm's investment in inventory be?

Question

Quizplus · Accepted Answer

Using the percent-of-sales method, we can calculate the investment in inventory as a percentage of the projected sales for next year. If we assume that the inventory turnover rate remains constant, then the investment in inventory can be calculated as follows:

Inventory = (Inventory/Sales) x Sales
Inventory = (2/10) x 14
Inventory = $2.8 million

Therefore, the investment in inventory for Zybo, Inc. next year is expected to be $2.8 million. The correct answer is (C).

Assume That Zybo,Inc