If a Firm Determines It Can Use the Percentage-Of-Sales Method

question 6

Multiple Choice

If a firm determines it can use the percentage-of-sales method and it follows the procedure described in the textbook, then the net result is that each expense item on its income statement (with the exception of those items that can be individually forecast) will grow at the same rate as sales. This approach is called the ________.

• A) continuous percentage method of forecasting
• B) stable fraction method of forecasting
• C) regular proportion method of forecasting
• D) constant ratio method of forecasting
• E) steady percentage method of forecasting

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Definitions:

Perpetual Inventory System

An inventory accounting technique that immediately logs the sale or acquisition of inventory using computerized point-of-sale systems and enterprise asset management software.

Cost of Goods Sold

Cost of Goods Sold is the direct costs attributable to the production of the goods sold by a company, including material and labor costs.

Quantity Discount

A price reduction offered to buyers purchasing in large volumes or amounts.

Inventory

Materials or goods a business holds for the purpose of resale or production, representing a current asset on the balance sheet.