The Percent of Sales Method Does Not Accurately Estimate the Balances

question 16

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:

Equity Theory

A concept in social psychology that suggests fairness in the distribution of resources and efforts affects motivation and satisfaction.

Perceive Inequity

The subjective feeling that one has been treated unfairly compared to others.

Change Work Inputs

Refers to modifications in the resources, processes, or materials used in a work environment to improve efficiency or outcomes.

Change Rewards Received

Incentives or benefits provided to individuals or teams for successfully implementing or adapting to organizational changes.