MANAGEMENT

Detailed explanation-1: -The percentage of sales method is a forecasting tool that makes financial predictions based on previous and current sales data. This data encompasses sales and all business expenses related to sales, including inventory and cost of goods.

Detailed explanation-2: -Disadvantages of the Percentage-of-Sales Method Many expenses are fixed or have a fixed component, and so do not correlate with sales. For example, rent expense does not vary with sales. Many balance sheet items also do not correlate with sales, such as fixed assets and debt.

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: -procedure used to set advertising budgets, based on a predetermined percentage of past sales or a forecast of future sales. This method of budget allocation is popular with advertisers because of its simplicity and its ability to relate advertising expenditures directly to sales.