Question

5. Percentage of Sales Models. Percentage of sales models usually assume that costs, fixed assets, and working capital all increase at the same rate as sales. When do you think these assumptions do not make sense? Would you feel happier using a percentage of sales model for short-term or long-term planning?

Answer 1

Consider the following analisis.

Step-by-step explanation:

Short-term planning considers specific and detailed cash needs for short-period only. It cannot get accurate cash needs from the percentage sales model. Therefore, the percentages sales model is not appropiate for short-term planning.

Long term planning can have a bigger picture of the company's details and needs. Therefore, the percentage sales model is appropiate for long term planning.