Calgary Doughnuts had sales of $100 million in 2007. Its cost of sales were $70 million. If sales are expected to grow at 20% in 2008, compute the forecasted costs using the percent of sales method.
A) $80 million
B) $84 million
C) $88 million
D) $96 million

Question

Quizplus · Accepted Answer

B) 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 = $100 million × (1 + 20%) = $120 million;
Cost of sales next year = $120 million × ($70 million / $100 million) = $84 million

Calgary Doughnuts Had Sales of $100 Million in 2007