Utilizing Past Cost and Expense Ratios (Percent-Of-Sales Method) When Preparing

Multiple Choice

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 increasing and overstate profits when sales are decreasing.
B) understate profits when sales are decreasing and overstate profits when sales are increasing.
C) overstate profits, no matter what the change in sales, as long as fixed costs are present.
D) understate profits, no matter what the change in sales, as long as fixed costs are present.