Payton Inc. reports in its 2017 annual report 10-K, sales of $8,180 million and cost of goods sold of $3,272 million. For next year, you project that sales will grow by 3% and that cost of goods sold percentage will be 1 percentage point higher.
Projected cost of goods sold for 2018 will be:
A) $3,304 million
B) $3,813 million
C) $3,454 million
D) $3,370 million
E) There is not enough information to determine the amount.

Question

Quizplus · Accepted Answer

The projected sales for 2018 are $8,180 million * 1.03 = $8,425.4 million. The cost of goods sold percentage for 2017 is $3,272 million / $8,180 million = 40%. If this percentage increases by 1 percentage point to 41%, the projected cost of goods sold for 2018 is 41% of $8,425.4 million = $3,454.414 million, which rounds to $3,454 million.