Assume that Wen-Group has sales of $7.5 million and accounts payable of $450,000.The corporation utilizes the percentage-of-sales method of financial forecasting.If Wen-Group is expected to generate sales of $9 million next year, what will the firm's accounts payable be?

Question

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Using the percentage-of-sales method, if sales increase, accounts payable will increase proportionally. The original sales are $7.5 million with accounts payable of $450,000. If sales grow to $9 million, the increase is $9 million / $7.5 million = 1.2 times. Therefore, accounts payable will also increase by this factor: $450,000 * 1.2 = $540,000.

Assume That Wen-Group Has Sales of $7