In a Period of Rising Sales, Utilizing Past Cost and Expense

question 1

Multiple Choice

In a period of rising sales, utilizing past cost and expense ratios (percent-of-sales method) when preparing pro forma financial statements will tend to ________.

• A) overstate costs and overstate profits
• B) overstate costs and understate profits
• C) understate costs and overstate profits
• D) understate costs and understate profits