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

a. scale economies are present for assets.

b. assets must be purchased in discrete quantities.

c. asset needs are independent of sales level.

d. all of the above impair the accuracy of the percent of sales forecast method.

Answer: D

Explanation:

The percentage of Sales forecast method is a way of allocating budgets to assets, using past expenses as a ratio of net sales. This is a convenient and straightforward method of Budgeting but its accuracy is affected by all the factors listed above. This method assumes that expenses have an unchanging relationship with sales.

Economies of scale introduces variable costs at different levels of quantity purchased thereby producing a distorted view of costs. The cost may vary from period to period based on quantity, making it impossible to repeat or plan.

Purchasing in discrete quantities also affect the ability to plan all expenses beforehand.

It is ineffective to allocate a budget to Assets independent of sales as they have fixed costs or no relationship to sales at all.