Calgary Doughnuts had sales of $200 million in 2007. Its cost of sales were $160 million. If sales are expected to grow at 10% in 2008, compute the forecasted costs using the percent of sales method.
A) $160 million
B) $170 million
C) $173 million
D) $176 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 = $200 million × (1 + 10%) = $220 million;
Cost of sales next year = $220 million × ($160 million / $200 million) = $176 million

Calgary Doughnuts Had Sales of $200 Million in 2007