Which of the Following Is a Disadvantage of Using a Percentage-Of-Sales

question 28

Multiple Choice

Which of the following is a disadvantage of using a percentage-of-sales method to determine the marketing communications budget?

• A) It discourages stability when competing firms spend approximately the same percentage of their sales on communications.
• B) By using a percentage-of-sales method, communication expenditures tend to be extremely high irrespective of what a company can afford.
• C) It discourages management from thinking of the relationship among communication cost, selling price, and profit per unit.
• D) Dependence of the percentage-of-sales method on year-to-year sales fluctuations interferes with long-range planning.
• E) The percentage-of-sales method views sales as the result in itself rather than the determiner of communications.

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Definitions:

Correlation

A statistical measure that describes the extent to which two variables change together, and thus how well one variable can predict the other.

Weighted Average

A calculation that takes into account the varying degrees of importance of the numbers in a data set, often used in financial metrics like WACC.

Standard Deviations

A measure of the dispersion or variation in a set of values, used to indicate volatility in financial markets.

Portfolio's Risk

The exposure to uncertainty and potential financial loss inherent in a portfolio, influenced by the volatility and correlation of its individual investments.