For Firms with High Fixed Costs, the Percent-Of-Sales Approach for Preparing

question 15

Multiple Choice

For firms with high fixed costs, the percent-of-sales approach for preparing a pro forma income statement tends to

• A) overestimate profits when sales are increasing.
• B) underestimate profits when sales are increasing.
• C) be an accurate predictor of profits.
• D) be a difficult model to apply.