If transportation costs were a huge portion of a firm's expenses and the firm expected gas prices to increase greatly in the next year, then in preparing its pro forma income statement the firm should ________.

Question

Quizplus · Accepted Answer

If the firm expects gas prices to increase greatly in the next year, it is likely that transportation costs will increase as well. Therefore, to prepare a pro forma income statement, the firm should increase the percentage of transportation costs from the percentage of last year's sales. This will provide a more accurate projection of expenses and help the firm make informed decisions about pricing, budgeting, and other aspects of their business operations. Option A uses the percentage of transportation costs from last year's sales, which may not reflect the expected increase in gas prices. Option B decreases the percentage of transportation costs, which is unlikely to be accurate given the expectation of an increase in gas prices. Option D is too extreme and doubling the percentage of transportation costs may not be realistic based on the expected increase in gas prices.

If Transportation Costs Were a Huge Portion of a Firm's