Stanley Corp.has current sales of $50 million,cost of sales of $40 million and forecasts that next year's sales will grow to $60 million.Using the percent of sales method,compute the forecast for next year's cost of sales.

Question

Quizplus · Accepted Answer

The percent of sales method involves forecasting next year's cost of sales based on the current year's sales and cost of sales ratio. The current cost of sales is $40 million on sales of $50 million, which is 80% ($40 million / $50 million). To forecast next year's cost of sales, apply this percentage to next year's sales forecast of $60 million: 80% of $60 million = $48 million.