Which of the Following Is a Limitation of the "Percent

question 70

Multiple Choice

Which of the following is a limitation of the "percent of sales method" of preparing pro forma financial statements?

• A) A firm's investment in accounts receivable is seldom related to sales volume.
• B) Not all assets and liabilities increase or decrease as a constant percent of sales.
• C) Inventory levels are seldom affected by changes in sales volume.
• D) The dividend payout ratio may change from one year to the next.

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Definitions:

Marginal Benefits

The additional benefits received from consuming one more unit of a good or service.

Marginal Costs

The rise in overall expenses that occurs when the production amount is increased by a single unit.

MP3 Players

Portable electronic devices designed to play digital audio files in the MP3 format, popular for music playback before the widespread use of smartphones.

Unit Costs

The charges a company faces in the process of making, holding, and vending one individual unit of a particular product or service.