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:

Multiple-class Shares

Stocks issued by a single company that have different rights, dividends, or voting powers, typically designated as Class A, Class B, etc.

Front-end Load

A commission or sales charge applied at the time of the initial purchase of an investment.

SEC Rule 12b-1

A regulation by the U.S. Securities and Exchange Commission that allows mutual funds to charge their shareholders for advertising and sales promotion expenses.

Marketing Expenses

Costs associated with promoting a company, product, or service, including advertising, product samples, and event sponsorships.