Final answer:
Using the percent of sales method and the assumption that sales are to rise by 25%, the projection for next year's cost of goods sold is calculated to be $19,656,250.
Step-by-step explanation:
To determine the projection for next year's cost of goods sold using the percent of sales method, we start with the current year's sales and cost of goods sold. The current year's sales are $26,500,000, and the current year's cost of goods sold is $15,725,000. We are told that sales are expected to rise by 25%, so let's calculate the projected sales for next year:
Projected Sales = Current Sales + (Current Sales × Sales Increase Percentage)
Projected Sales = $26,500,000 + ($26,500,000 × 0.25)
Projected Sales = $26,500,000 + $6,625,000
Projected Sales = $33,125,000
Next, we'll find the percentage of sales that cost of goods sold represented for the current year:
Percentage of Sales for Cost of Goods Sold = (Current Year's Cost of Goods Sold / Current Year's Sales) × 100
Percentage of Sales for Cost of Goods Sold = ($15,725,000 / $26,500,000) × 100
Percentage of Sales for Cost of Goods Sold = 0.5934 × 100
Percentage of Sales for Cost of Goods Sold = 59.34%
Now we'll use this percentage to estimate the cost of goods sold for next year:
Projected Cost of Goods Sold = Projected Sales × (Percentage of Sales for Cost of Goods Sold / 100)
Projected Cost of Goods Sold = $33,125,000 × (59.34 / 100)
Projected Cost of Goods Sold = $33,125,000 × 0.5934
Projected Cost of Goods Sold = $19,656,250
Therefore, the projected cost of goods sold for next year is $19,656,250.