In Percentage of Sales method of preparation of Projected Financial Statements, the Operating Expenses should be projected on the basis of

ACCOUNTING

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

In ‘Percentage of Sales’ method of preparation of Projected Financial Statements, the Operating Expenses should be projected on the basis of

A	% of Sales
B	% of Gross Profit
C	% of Profit before tax
D	% of Cost of goods Sold

Explanation:

Detailed explanation-1: -The percent of sales method is a financial forecasting model in which all of a business’s accounts-financial line items like costs of goods sold, inventory, and cash-are calculated as a percentage of sales. Those percentages are then applied to future sales estimates to project each line item’s future value.

Detailed explanation-2: -Administrative expenses are apportioned among various departments on basis of the sales value of each department.

Detailed explanation-3: -The percentage of sales method is used to calculate how much financing is needed to increase sales. The method allows for the creation of a balance sheet and an income statement. The equation to calculate the forecasted net income is: Forecasted Sales = Current Sales x (1 + Growth Rate/100).

Detailed explanation-4: -Project your spending and sales. Create financial projections. Determine your financial needs. Use the projections for planning. Plan for contingencies. Monitor.

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GENERAL KNOWLEDGE

GK

ACCOUNTING