Use the Following to Answer Questions

question 213

Multiple Choice

Use the following to answer questions:
-(Table: Cakes) Look at the table Cakes. Pat is opening a bakery to make and sell special birthday cakes. She is trying to decide how many mixers to purchase. Her estimated fixed and average variable costs if she purchases one, two, or three mixers are shown in the table. Assume that average variable costs do not vary with the quantity of output. If Pat purchases three mixers, her average fixed cost _____ in the range of output between 100 and 400 cakes.

• A) increases
• B) decreases
• C) remains the same
• D) can't be calculated

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Definitions:

Acid-Test Ratio

A stringent indicator of whether a firm has enough short-term assets to cover its immediate liabilities without selling inventory.

Current Ratio

A financial metric assessing a firm's capacity to settle short-term debts using its existing assets.

Liquidity Ratios

Liquidity ratios are financial metrics used to assess a company's ability to meet its short-term obligations by comparing its liquid assets to its current liabilities.

Equity Multiplier

A financial ratio that measures a company's total assets financed by shareholders' equity, indicating the level of leverage used by the company.