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

question 40

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 and overstate profits when sales are increasing
• B) understate profits, no matter what the change in sales, as long as fixed costs are present
• C) understate profits when sales are increasing and overstate profits when sales are decreasing
• D) overstate profits, no matter what the change in sales, as long as fixed costs are present

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