The Caraway Seed Company has grown rapidly over the last decade and is trying to forecast the firm’s inventory requirements for the next 5 years. Historical sales and inventories for the last 10 years are found below, along with projected sales for the next 5 years.

a. Use the percent of sales method for forecasting Caraway’s inventories for the next 5 years if the percent of sales is equal to the average of the percent of sales for the last 10 years.

b. The following graph includes a plot of the historical relationship between inventories and sales along with a line representing the percent of sales forecast. Analyze the forecast line compared to the plot of inventory and sales to see if you see any problems with the percent of sales forecast. Discuss.

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YEAR SALES INVENTORIES $ 5,250,000 6,200,000 2009 $1,590,924 2010 1,724,221 2011 6,940,000 1,899,573 2012 5,650,000 1,530,054 2013 6,255,000 1,772,059 2014 7,100,000 1,919,042 2015 7,350,000 2,012,025 2016 8,010,000 2,006,023 2017 8,775,000 2,292,119 2018 10,390,000 2,537,486 2019 11,500,000 2020 12,000,000 2021 12,500,000 2022 13,000,000 2023 13,500,000