Scion Company wants to plan inventories for the year 2017 based on average of the past 5 years data. Scion’s CEO, Radha Kar, believes that it is a good idea to use the average percent of sales forecasting method as sales and inventories increased in recent years. However, the company’s CFO Harry Beige is of another opinion.

Harry wants to use the most recent percent of sales for inventory predictions.

The table has documented the inventory data, sales, and percentage sales.

a. Plot the data for inventories and explain the type of relationship between inventories and sales.

b. Calculate inventory levels with the 2 methods mentioned. Explain the differences, if any, and the reason why the differences occur. Scion Company expects $39 million in sales in 2017.

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YEAR SALES 2012 24,000 2013 22,000 2014 27,500 2015 28,000 2016 35,000 INVENTORY 5,000 4,900 9,800 10,400 12,000 % OF SALES 20.83 22.27 36.30 37.14 34.29