The percent‑of‑sales method to prepare a pro forma income statement assumes the firm has no fixed costs. Therefore, the use of the past cost and expense ratios generally tends to _________ profits when sales are increasing.
A. accurately predict
B. overstate
C. understate
D. have no effect on
Answer:C
The percent‑of‑sales method to prepare a pro forma income statement assumes the firm has no fixed costs. Therefore, the use of the past cost and expense ratios generally tends to _________ profits when sales are increasing.
A. accurately predict B. overstate C. understate D. have no effect on