Question

McKinnon Inc. reports current sales of $523 million and cost of goods sold of $262 million. For next year, sales are projected to grow by 6%. If the percentage of cost of goods sold to sales remains constant, what would be the projected amount of cost of goods sold (in \$ millions, rounded to one decimal place, e.g., \$12.3) for next year? In calculating the cost of goods sold percentage of sales ratio, please do not round beyond one decimal place, e.g., 34.5%.

Answer 1

The projected amount of cost of goods sold for next year is approximately $277.9 million, assuming that the cost of goods sold to sales ratio remains constant at 50.1% and there is a projected 6% growth in sales.

Step-by-step explanation:

The student has been asked to calculate the projected amount of cost of goods sold (COGS) for the next year, given a 6% projected growth in sales and assuming that the percentage of COGS to sales remains constant. To solve this, we must first determine the current COGS-to-sales ratio.

Currently, McKinnon Inc. reports sales of $523 million and COGS of $262 million. Using these figures, the COGS-to-sales ratio is calculated as follows:

COGS to Sales Ratio = (COGS / Sales) × 100 = ($262 million / $523 million) × 100 = 50.1%

Next year, sales are projected to grow by 6%, resulting in projected sales of:

Projected Sales = Current Sales × (1 + Growth Rate) = $523 million × (1 + 0.06) = $554.38 million

Assuming the percentage of COGS to sales remains constant at 50.1%, the projected COGS for next year would be:

Projected COGS = Projected Sales × (COGS to Sales Ratio / 100) = $554.38 million × (50.1 / 100) = $277.95 million

Therefore, the projected amount of cost of goods sold for next year is approximately $277.9 million (rounded to one decimal place).