Assume that Calamar Corp. has sales of $7.5 million and accounts payable of $450,000. The corporation utilizes the percent-of-sales method of financial forecasting. If Calamar is expected to generate sales of $9 million next year, what will the firm's accounts payable be?
A) $540,000
B) $450,000
C) $405,000
D) None of the above

Question

Quizplus · Accepted Answer

The percent-of-sales method assumes that accounts payable will increase proportionally with sales, so we can set up a proportion: 
Current sales / current accounts payable = Next year's expected sales / next year's accounts payable 
Solving for the unknown variable (next year's accounts payable), we get: 
$7.5 million / $450,000 = $9 million / X 
X = $540,000, which is the expected accounts payable for next year. Therefore, the answer is choice A.

Assume That Calamar Corp