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:

Breach

A violation or infringement of a legal obligation, contract, or duty.

Buyer's Breach

A violation of contract terms by the buyer, such as failing to pay the purchase price or to accept delivery of goods.

Price Recovery

The process by which prices return to higher levels after a period of decline or correction in a market.

Delivery Stop

A measure taken to halt the shipping or distribution process of goods, typically due to logistics or quality control issues.