Question

McKinnon Inc. reports current sales of $520 million and cost of goods sold of $367 million. For next year, sales are projected to grow by 5%. If the percentage of cost of goods sold to sales is expected to be 4 percentage points higher than it was this year (i.e., a two-percentage point increase from 40% would be 42% ), 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 at McKinnon Inc., after a 5% increase in sales and a 4 percentage point increase in COGS percentage, is approximately $407.5 million.

Step-by-step explanation:

To calculate the projected amount of cost of goods sold (COGS) for next year, we need to follow a few steps. First, we find the current COGS percentage, which is $367 million / $520 million, approximately 70.6%. If the COGS percentage is expected to be 4 percentage points higher next year, it will become approximately 74.6% (70.6% + 4%). Next, we calculate the projected sales for next year, which is a 5% increase on this year's $520 million, resulting in $546 million ($520 million * 1.05). Finally, we apply the projected COGS percentage to the projected sales to find next year's COGS: $546 million * 74.6% = approximately $407.5 million.