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Question

A planner’s percentage of sales model forecasts that sales will grow by 20% next year. If costs of goods sold are proportionate at 70% of sales, then costs of good sold will...?

a: grow to 90% of sales
b: grow in dollars by 70%
c: not change in dollar amount
d: increase by 20% in dollar terms

Answer 1

A planner’s percentage of sales model forecasts that sales will grow by 20% next year. If costs of goods sold are proportionate at 70% of sales, then costs of good sold will

d: increase by 20% in dollar terms.

This can easily be double-checked. Assume sales was $100 this yr. Next yr sales will be $120. COGS at 70% of sales is $70 this yr, and will be 70% of $120 next yr, i.e. $84. This is an increase of $14. 14/70 gives an increase of 20% in dollar terms.