Final answer:
A pro forma income statement assumes that all values will increase by the same percentage as sales increase. It is false that all values on a pro forma income statement increase by the same percentage as sales; while some expenses like COGS vary with sales, others do not.
Step-by-step explanation:
A pro forma income statement is a financial statement that estimates the potential future financial performance of a business. The statement includes projected revenues, expenses, and net income. In most cases, the values on a pro forma income statement are assumed to increase or decrease in proportion to the change in sales.
For example, if sales increase by 10%, then expenses, such as cost of goods sold and operating expenses, will also increase by 10% to maintain a consistent percentage relationship. This assumption helps in predicting how changes in sales will impact the profitability of the business.
Therefore, the statement 'on a pro forma income statement, all values will increase by the same percentage as sales increase' is true.
It is false that all values on a pro forma income statement increase by the same percentage as sales; while some expenses like COGS vary with sales, others do not.
On a pro forma income statement, it is false that all values will increase by the same percentage as sales increase. While pro forma statements do often project revenues and expenses based on expected sales increases, not all line items on the income statement will always change at the same rate. Certain expenses, such as cost of goods sold (COGS), may be directly variable with sales, but others, like administrative costs or depreciation, may not vary directly with sales. Additionally, some expenses may increase at a different rate than sales due to factors like economies of scale or changes in supplier pricing.