Percent-of-sales method is a method for expressing each expense item as a percentage of sales. For example, in the case of new Venture Fitness Drinks, its cost of sales has averaged 47.5 percent over the past two years. In 2008, its sales were $586,600 and its cost of sales was $2, 68,900. The company sales are forecast to be $821,200 in 2009. Therefore, based on the percent-of sales method, its cost of sales in 2009 will be $390,000, or 47.5 percent of projected sales. The same procedure could be used to forecast the cost of each expense item on the company’s income statement.
Definition