Which is the recommended way to forecast items such as inventory and accounts payable?
A)Inventory and accounts payable should be forecasted based on revenues,since most other working capital items are forecasted based on revenues.
B)Inventory and accounts payable should be forecasted based on COGS,because these items are more correlated with input prices than with output prices.
C)Inventory and accounts payable should be the plug once total operating assets and operating liabilities have been forecasted.
D)Inventory and accounts payable should be forecasted based on total assets,as these tend to scale together.

Question

Quizplus · Accepted Answer

Inventory and accounts payable are more closely correlated with input prices, which affect the cost of goods sold (COGS), than with revenues. Therefore, it is recommended to forecast these items based on COGS rather than revenues.

Which Is the Recommended Way to Forecast Items Such as Inventory