Question

McKinnon Inc. reports in its 2013 annual report 10-K, sales of $2,045 million and cost of goods sold of $818 million. For next year, you project that sales will grow by 5% and that cost of goods sold percentage will be 2 percentage points higher.
Projected cost of goods sold for 2014 will be:

A) $834 million

B) $902 million

C) $859 million

D) $861 million

Answer 1

Answer:

B) $902 million

Explanation:

For computing the projected cost of goods sold, first we have to determine the percentage for costs of goods sold which is shown below:

Percentage = Costs  of goods sold ÷ sales

                    = $818 million ÷ $2,045 million

                    = 40%

The costs of goods sold now is 42%

Now , the sales would be = $2,045 million × 1.05 = $2,147.25 million

Now the projected cost of goods sold would be

= $2,147.25 million × 42%

= $902 million