Percentage of sales method,

Definition of Percentage of sales method:

1. General: Method of estimating cash requirements by expressing revenues and expenses as percentages of sales, and using these percentages to construct a pro forma income statement.

2. Advertising: Advertising expense budgeting method based on allocating a fixed percentage (say 5 percent) of the anticipated sales revenue to advertising. It is based on the erroneous assumption that sales cause advertising whereas the reality is just the opposite (advertising causes sales). See also adaptive control method, affordable method, competitive parity method, and objectives and task method.