Use the "percent of sales method" of preparing pro forma financial statements to determine the projection for next year's cost of goods sold.Make the following assumptions: current year's sales are $27,800,000; current year's cost of goods sold is $17,528,000; sales are expected to rise by 30%.What is the projection for next year's cost of goods sold?

Question

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The percent of sales method involves calculating the cost of goods sold as a percentage of sales and applying that percentage to projected sales. The current cost of goods sold is $17,528,000, and sales are $27,800,000, so the cost of goods sold is 63% of sales. With a 30% increase, next year's sales are projected to be $36,140,000. Applying the 63% to the projected sales gives $22,786,400.

Use the "Percent of Sales Method" of Preparing Pro Forma