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    Utilizing Past Cost & Expense Ratios

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    In a period of rising sales, utilizing past costs and expense ratios (percent-of-sales method) when preparing pro forma financial statements will trend to _______

    overstate costs and overstate profits, overstate costs and understate profits, understate costs and overstate profits, or understate costs and understate profits.

    Please advise answer & why.

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    Overstate cost and understate profits. Since sales are increasing, the variable cost will ...

    Solution Summary

    The solution answers a question regarding utilizing pas cost and expense ratios.