A firm has sales of $1,090,000 and cost of goods sold of $739,000. The firm expects sales to increase by 5% next year. What is the gross profit amount expected to be next year if the firm uses the percentage of sales approach when compiling pro forma statements?

Question

Quizplus · Accepted Answer

The gross profit is calculated as sales minus cost of goods sold. With a 5% increase in sales, next year's sales are expected to be $1,090,000 * 1.05 = $1,144,500. Using the percentage of sales approach, if the cost of goods sold remains the same percentage of sales, it would also increase by 5% to $739,000 * 1.05 = $775,950. Therefore, the expected gross profit next year would be $1,144,500 - $775,950 = $368,550.

A Firm Has Sales of $1,090,000 and Cost of Goods