The best way to adjust for the presence of fixed costs when using the simplified approach for pro forma income statement preparation is ________.
A) to proportionately vary the fixed costs with the change in sales
B) to adjust for projected fixed-asset outlays
C) to disproportionately vary the costs with the change in sales
D) to break the firm's historical costs into fixed and variable components

Question

Quizplus · Accepted Answer

Fixed costs, by definition, do not change with the level of production or sales. Therefore, the best approach is to separate historical costs into fixed and variable components. This allows for an accurate reflection of costs that will not change with sales volume (fixed costs) and those that will (variable costs).

The Best Way to Adjust for the Presence of Fixed