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Percent-of-sales approach for firms with high fixed costs

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For firms with high fixed costs, the percent-of-sales approach for preparing a pro forma income statement tends to ________

overestimate profits when sales are increasing,
underestimate profits when sales are increasing,
be an accurate predictor of profits, or
neither understate nor overstate profits

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Answer to a multiple choice question on Percent-of-sales approach for firms with high fixed costs

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Answer : underestimate profits when sales are increasing
The percent-of-sales method may ...

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