Bunbury Doughnuts had sales of $100 million in 2016. Its cost of sales was $70 million. If sales are expected to grow at 20% in 2017, compute the forecasted costs using the per cent of sales method.

Question

Quizplus · Accepted Answer

The percent of sales method involves forecasting costs based on the ratio of costs to sales in the previous period. In 2016, the cost of sales was $70 million on sales of $100 million, or 70%. If sales grow by 20% in 2017, sales would be $120 million ($100 million * 1.20). Therefore, forecasted costs at the same 70% ratio would be $120 million * 70% = $84 million.

Bunbury Doughnuts Had Sales of $100 Million in 2016