The percent of sales method does not provide a reasonable prediction of asset levels for instances when there are economies of scale in the use of the asset being forecast and when asset purchases are lumpy.

Question

Quizplus · Accepted Answer

The percent of sales method assumes a linear relationship between sales and assets, which may not hold true in cases where there are economies of scale or lumpy assets purchases. Therefore, it may not provide an accurate prediction of asset levels in such instances.

The Percent of Sales Method Does Not Provide a Reasonable