The accuracy of the percent of sales forecast method is impaired if

Question

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All of the given factors impair the accuracy of the percent of sales forecast method.

A) Scale economies refer to the savings in cost per unit due to an increase in production. The percent of sales forecast method assumes a linear relationship between sales and asset requirements, which may not be accurate if there are scale economies leading to a non-linear relationship.

B) If assets must be purchased in discrete quantities, the percent of sales forecast method may not accurately estimate the required investment. For example, if a company must buy a machine in multiples of 5, but sales only increase by 4 units, the method would not account for the partial investment.

C) If asset needs are independent of sales level, the percent of sales forecast method would not provide a useful estimate of the required investment. For example, if a company must invest in a new technology due to regulatory changes, the method would not account for this non-sales-related need.

The Accuracy of the Percent of Sales Forecast Method Is