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.
Answer:B
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.