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.
B. understate profits when sales are increasing.
C. overstate profits when sales are increasing.
D. neither understate nor overstate profits.
Answer:B
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. B. understate profits when sales are increasing. C. overstate profits when sales are increasing. D. neither understate nor overstate profits.