Question

You are unsure what level of sales to forecast for your new drugstore, which you plan to open on New Year’s Day. Consequently, you have decided to make some assumptions. You believe that it is reasonable to assume that your trade area will encompass about 35 square miles. The city planning department has told you that within this area the population density is 1,157 people per square mile. You conservatively estimate that 40 percent of these individuals will visit your store an average of four times annually and that 85 percent will purchase something on a typical visit. You expect them to purchase an average of $26 per visit. Information from industry sources suggests that drugstores do more business in the fall and winter. In fact, you expect sales during each of the months of November, December, January, and February to be 10 percent of your annual volume. The remaining eight months will share equally the 60 percent of remaining sales. You believe that for your business to be profitable you need to have a beginning-of-month inventory to sales ratio of 3.0 for October through November and 2.5 for the remaining months. You want to plan your beginning-of-month inventory for each of the next 12 months. You also want to begin the first month of your second year of business with $300,000 in inventory at retail prices. Please compute the beginning of the month inventory for each of the next 12 months.

Show your work

Answer 1

solution-
25*1157= the population
25*1157*.4= the population that will visit your store
25*1157*.4*4=the # of visits you can expect in a year
25*1157*.4*4*.85= the # of visits you can expect in a year that will end in a sale
25*1157*.4*4*.85*25= $ of sales in a year= 983,450
983450*.1= sales for nov,dec,jan,feb= 98,345
983450*.6/8=sales for each of the other 8 months= 73,758.75

month inventory
jan 250,000
feb 98345*2.5= 245,862.50
mar 73,758.75*2.5= 184,396.88
apr 73,758.75*2.5= 184,396.88
may 73,758.75*2.5= 184,396.88
jun 73,758.75*2.5= 184,396.88
jul 73,758.75*2.5= 184,396.88
aug 73,758.75*2.5= 184,396.88
sep 73,758.75*2.5= 184,396.88
oct 73,758.75*3= 221,276.25
nov 98345*3= 295,035
dec 98345*2.5= 245,862.50