The Erie Bay Liner Company has sales of $2.4 million and operating expenses of $180,000. The firm uses the percentage of sales approach and estimates next year's sales at $2.5 million. What are the operating expenses expected to be next year?

Question

Quizplus · Accepted Answer

Operating expenses are expected to be $187,500 next year because using the percentage of sales approach, the operating expenses as a percentage of sales for the current year are calculated as $180,000 / $2,400,000 = 7.5%. Applying this percentage to next year's sales of $2.5 million, the expected operating expenses are 7.5% of $2,500,000 = $187,500.

The Erie Bay Liner Company Has Sales of $2