The percent of sales method does not accurately estimate the balances for lumpy assets. Which of...

The percent of sales method does not accurately estimate the balances for lumpy assets. Which of the following statements best describes the possible errors?

A.

The percent of sales method consistently underestimates the forecasted balances of lumpy assets.

B.

If excess capacity exists, the percent of sales method will overestimate asset requirements.

C.

If fixed assets are utilized at full capacity currently, the percent of sales method will underestimate the forecasted fixed asset balance.

D.

The percent of sales method consistently overestimates the forecasted balances of lumpy assets.

Expert Solution

Option B is correct

If excess capacity exists, the percent of sales method will overestimate asset requirements.

jeff jeffy answered 2 years ago

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