The Percent of Sales Method Does Not Accurately Estimate the Balances

question 26

Multiple Choice

The percent of sales method does not accurately estimate the balances for lumpy assets.Which of the following statements best describes the possible errors?

• A) If excess capacity exists, the percent of sales method will overestimate asset requirements.
• B) The percent of sales method consistently underestimates the forecasted balances of lumpy assets.
• C) The percent of sales method consistently overestimates the forecasted balances of lumpy assets.
• D) If fixed assets are utilized at full capacity currently, the percent of sales method will underestimate the forecasted fixed asset balance.

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Definitions:

Sample Standard Deviation

Sample standard deviation is a statistic that measures the dispersion of a dataset relative to its mean and is computed from the square root of the variance of the sample.

Sample Mean

The average value computed from a sample of a population, used as an estimate of the population mean.

Population Mean

The population mean is the average of all the values in a population. It is a measure of central tendency that summarises the characteristic of the entire population.

Magnetic Resonance Imaging (MRI)

A medical imaging technique used in radiology to form pictures of the anatomy and the physiological processes of the body.