Calgary Doughnuts had sales of $300 million in 2007. Its cost of sales were $200 million. If sales are expected to grow at 15% in 2008, compute the forecasted costs using the percent of sales method.
A) $210 million
B) $215 million
C) $225 million
D) $230 million

Question

Quizplus · Accepted Answer

D) Next year sales = current sales times (1 + growth rate)
Cost of sales next year = Next year sales × (last year costs / last year sales)
Next year sales = $300 million × (1 + 15%) = $345 million;
Cost of sales next year = $345 million × ($200 million / $300 million) = $230 million

Calgary Doughnuts Had Sales of $300 Million in 2007