The percentage of sales method assumes that all financial ratios are constant, which means, for example, that if you plotted a graph of inventories versus sales, the regression line would be linear and would have a positive Y-intercept.

Question

Quizplus · Accepted Answer

The statement is false. The percentage of sales method assumes that certain financial ratios are proportional to sales, but not necessarily constant. The regression line for inventories versus sales may not be linear, and may not have a positive Y-intercept.

The Percentage of Sales Method Assumes That All Financial Ratios