(Percent

of sales

forecasting)

Which of the following accounts would most likely vary directly with the level of a firm's sales? Discuss each briefly.

	Yes	No		Yes	No
Cash	____	____	Notes payable	____	____
Marketable securities	____	____	Plant and equipment	____	____
Accounts payable	____	____	Inventories	____	____

Is cash likely to vary directly with the level of a firm's sales?(Select the best choice below.)

A.

Yes, cash receipts vary directly with sales and have a relation to the firm's customers payment habits or the firm's policy regarding payments on its accounts payable.

B.

No, cash receipts follow sales with a lag related to the payment habits of the firm's customers and the firm's policy regarding payments on its accounts payable.

Are marketable securities likely to vary directly with the level of a firm's sales?(Select the best choice below.)

A.

Yes, the value of marketable securities varies directly with sales.

B.

No, marketable securities are not related to sales.

Is accounts payable likely to vary directly with the level of a firm's sales?(Select the best choice below.)

A.

No, accounts payable will not vary directly with sales.

B.

Yes, accounts payable will vary directly with sales.

Is notes payable likely to vary directly with the level of a firm's sales?(Select the best choice below.)

A.

Yes, notes payable is likely to vary directly with sales.

B.

No, notes payable will only follow sales if the firms uses a line of credit to finance its working capital needs.

Is plant and equipment likely to vary directly with the level of a firm's sales?(Select the best choice below.)

A.

No, plant and equipment is not likely to vary directly with the level of sales.

B.

Yes, plant and equipment is likely to vary directly with the level of sales.

Are inventories likely to vary directly with the level of a firm's sales?(Select the best choice below.)

A.

Yes, inventories are likely to vary directly with the level of sales.

B.

No, inventories are not likely to vary directly with the level of sales.