Rheinhold is likely using the percentage of sales approach, which is used to budget advertising expenses according to a fixed percentage based on a budget period.
The percentage of sales approach occurs when each expense for a past or current period is converted as a percentage of net sales and applied at the forecast sales level.
Therefore, while this is an effective method for advertising budgets, the percentage of sales can be based on fixed expenses and balance sheet items that do not correlate with sales.
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