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

question 97

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) underestimate profits when assets are increasing
• D) overestimate profits when assets are increasing

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Definitions:

Probability

The measure of the likelihood that an event will occur, expressed as a number between 0 and 1.

Control

In experiments, the standard to which comparisons are made by keeping all variables constant except the one being tested.

Biased

Showing an unfair preference or prejudice for or against something or someone.

Suspend Belief

Temporarily accepting something as true or possible, even if it seems unlikely, often used in the context of fiction.