Chartered Financial Analyst Level 1

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Explanation:

Option A is incorrect because general corporate costs are typically fixed rather than variable and are better forecasted using a fixed growth rate, such as expected wage inflation.
Option B is correct. Selling and distribution expenses often include a significant variable component, making them suitable for modeling as a percentage of sales.
Option C is incorrect. The cost of goods sold (COGS) is usually the largest expense for product-based companies and has a direct link to sales, often forecasted as a percentage of sales or gross margin. While SG&A expenses may have some variability, their overall relationship with revenues is generally less direct compared to COGS.

Explanation:

Option A is incorrect because general corporate costs are typically fixed rather than variable and are better forecasted using a fixed growth rate, such as expected wage inflation.
Option B is correct. Selling and distribution expenses often include a significant variable component, making them suitable for modeling as a percentage of sales.
Option C is incorrect. The cost of goods sold (COGS) is usually the largest expense for product-based companies and has a direct link to sales, often forecasted as a percentage of sales or gross margin. While SG&A expenses may have some variability, their overall relationship with revenues is generally less direct compared to COGS.

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General corporate costs are primarily variable in nature.

25.0%

Selling and distribution expenses can be effectively modeled as a proportion of sales.

75.0%

SG&A expenses exhibit a stronger direct correlation with revenues compared to the cost of goods sold.