The best way to adjust for the presence of fixed costs when preparing a pro forma income statement is ________.

Question

Quizplus · Accepted Answer

The best way to adjust for the presence of fixed costs when preparing a pro forma income statement is to break the firm's historical costs into fixed and variable components. This allows for a more accurate projection of future fixed costs based on historical patterns and trends. Proportionately varying fixed costs with the change in sales may not accurately reflect the actual fixed costs incurred by the firm, while adjusting for projected fixed-asset outlays only addresses a portion of the fixed costs. Disproportionately varying costs with the change in sales is not a recommended method as it may lead to inaccurate projections and financial statements.

The Best Way to Adjust for the Presence of Fixed