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

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Definitions:

Reengineering

The process of redesigning business processes and workflows to achieve significant improvements in critical aspects like productivity, cycle times, and quality.

Technology

The use of scientific insights for practical applications, chiefly in the realm of industry.

Total Quality Management

A management approach focused on continuous improvement of processes, products, and services, involving all members of an organization.

Economic Order Quantity

A formula used in inventory management to determine the optimal order size that minimizes the total costs of holding and ordering stock.