Zack Company Has a Current Ratio of 2

question 26

Multiple Choice

Zack Company has a current ratio of 2.5. What will be the effect of a purchase of inventory with cash on the acid-test ratio and on working capital?

• A) Choice A
• B) Choice B
• C) Choice C
• D) Choice D

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Definitions:

Fixed Selling

Refers to the selling expenses that do not change with the level of sales.

Financial Disadvantage

A situation where a person or entity is in a less favorable financial position compared to others due to various factors.

Fixed Manufacturing Overhead

The portion of manufacturing overhead costs that remains constant regardless of the volume of production, including expenses such as factory rent and salaries of permanent staff.

Avoidable Cost

Expenses that can be eliminated if a particular decision or action is avoided.