Question

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

Answer 1

Answer:

$84 million

Explanation:

For the year 2007

Sales= 100 million

Cost of sales = 70 million

Percent of sales = Cost of sales / Sales * 100

P.S.=70/100 * 100 = 70%

For the year 2008

Sales= 120 million

Sales= Sales in 2007 * (1+20%)

Sales= 100 million* (1+0-20)

Sales=100 million *1.20

Sales=120 million

Therefore; Cost of Sales / Sales = 70%

Cost of Sales = 70% * Sales

COS= 70% * 120 Million

COS= 0.70 * 120 million

COS= 84 million