Question

An analyst forecasts revenue to grow by 10% next year, and cost of goods sold to grow by 6% next year. As a result of those forecast, this year's forecast of gross profit would be

a. irrelevant to the income forecast

b. the same percentage of revenue as last year

c. greater than the percentage of revenue last year

d. less than the percentage of revenues last year

Answer 1

Let's take an example.

Let sales be $100,000 and cost of goods sold be $50,000

Gross profit = Sales - Cost of Goods Sold = 100,000 - 50,000 = 50,000

Percentage of revenue = 50,000/100,000 = 50%

.

Forecast for next year

Sales = 100,000 + 10% increase = 110,000

Cost of Goods Sold = 50,000 + 6% increase = 53,000

Gross profit = 110,000 - 53,000 = 57,000

Percentage of revenue = 57,000/110,000 = 51.82%

Percentage increased from 50%

Therefore option C is the answer