When fixed costs are part of a firm's cost structure,the percent of sales method will understate net income and overstate discretionary financing needed,if sales are increasing.

Question

Quizplus · Accepted Answer

The percent of sales method assumes all costs vary with sales, but fixed costs do not change with sales, leading to an understatement of net income and an overstatement of financing needs when sales increase.

When Fixed Costs Are Part of a Firm's Cost Structure,the