Which of the following is a major problem associated with the percentage-of-sales method?
A)It reverses the cause-and-effect relationship between advertising and sales.
B)It is financially unsafe.
C)It is extremely tough to implement.
D)It is used only by firms that do not understand the role of advertising and promotions.
E)It has no theoretical basis, and the budgetary amount is often set using a flat rate.

Question

Quizplus · Accepted Answer

The percentage-of-sales method assumes that advertising causes sales, when in reality the relationship between the two is more complex and may depend on other factors. This reverses the cause-and-effect relationship and can lead to inaccurate budgeting decisions.

Which of the Following Is a Major Problem Associated with the Percentage-Of-Sales