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

question 10

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 decreasing
• B) understate profits when sales are increasing
• C) overstate profits when sales are increasing
• D) neither understate nor overstate profits

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Definitions:

Maximum Price

The highest possible price that can be charged for a good or service, often regulated by law.

Equilibrium Price

The price at which the supply of an item equals the demand for that item within a market, resulting in economic equilibrium.

Quantity Demanded

The total amount of a good or service that consumers are willing and able to purchase at a specific price level, at a given time.

Price Floor

A government- or authority-set minimum price that can be charged for a good or service, aimed at preventing prices from falling too low.