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. be an accurate predictor of profits.
D. be a difficult model to apply.
Answer:B
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. be an accurate predictor of profits. D. be a difficult model to apply.