Question

Which of the following is untrue of the percent-of-sales method? Multiple Choice It is much easier than tracing through various cash flows to arrive at the pro forma statements. It is a broad-brush approach when compared to developing pro forma statements. The output is less meaningful because it doesn't give the month-to-month breakdown of data when compared to pro forma statements. Changes in sales levels is not an important aspect of this method.

Answer 1

Answer:

Changes in sales levels is not an important aspect of this method.

Explanation:

Percent of sales method follows some static steps as follows:

Every item in the income statement whether in contribution format, or in any other format shows the item as a percentage of sales, and therefore, if there is any change in the level of sales it will impact widely on the entire statement.

Thus, it is a crucial part of percent of sales method, and cannot be avoided in any manner.