Utilizing Past Cost and Expense Ratios (Percent-Of-Sales Method) When Preparing

question 26

Multiple Choice

Utilizing past cost and expense ratios (percent-of-sales method) when preparing pro forma financial statements will tend to

• A) understate profits when sales are increasing and overstate profits when sales are decreasing.
• B) understate profits when sales are decreasing and overstate profits when sales are increasing.
• C) overstate profits, no matter what the change in sales, as long as fixed costs are present.
• D) understate profits, no matter what the change in sales, as long as fixed costs are present.

---

Definitions:

Intellectual Ability

The capacity to think abstractly, reason, understand complex ideas, learn quickly, and solve problems.

Mental Abilities

The cognitive functions and processes related to knowledge, reasoning, memory, attention, and language that influence behavior.

Mental Age

A measure of an individual's cognitive ability compared to the average cognitive ability of an age group.

Chronological Age

The actual age of a person or thing, measured in years from the date of birth or inception.