Essay: The Percentage Sales Method

Sample Essay

The values for 2009 have been forecast by using the percentage sales method and all components of the income statement have been expressed as percentages of net sales. The first column of the table includes the actual values of 2008, the second column contains the percentages of each income statement item based on net sales and the third column indicates the forecast values for 2009.

The analysis of forecast values of 2009 indicates that the net income of the company has decreased even though the net sales have increased in 2009. The percentage of sales or common size income statements concept entails that all values are expressed as a percentage of sales and the values of proceeding years are forecast based on these percentages. Every amount in the income statement is expressed as a percentage of sales except income tax which is assumed to be 15 percent and restructuring costs which are assumed to be 2 percent.

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