HealthScion Instruments produces a complete line of medical instruments used by plastic surgeons and has experienced rapid growth over the past 5 years. In an effort to make more accurate predictions of its financing requirements, HealthScion is currently attempting to construct a financial planning model based on the percent of sales forecasting method. However, the company's chief financial analyst, Radha Kaur, is concerned that the projections for inventories will be in serious error. She recognizes that the firm has begun to accrue substantial economies of scale in its inventory investment and has documented this fact in the data and calculations shown in the table below.

a. Plot HealthScion’s sales and inventories for the past 5 years. What is the relationship between these two variables?

b. Estimate firm inventories for 2019, when firm sales are projected to reach $39 million. Use the average percentage of sales for the past 5 years, the most recent percentage of sales, and your evaluation of the true relationship between the sales and inventories from part (a) to make three predictions for the level of inventories.

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YEAR SALES INVENTORY % OF SALES 2014 $24,000 $5,000 20.83% 2015 22,000 4,900 22.27% 2016 27,500 9,800 36.30% 2017 28,000 10,400 37.14% 2018 35,000 12,000 34.29%