The Current Ratio Is

question 151

Multiple Choice

The current ratio is

• A) calculated by dividing current liabilities by current assets.
• B) used to evaluate a company's liquidity and short-term debt paying ability.
• C) used to evaluate a company's solvency and long-term debt paying ability.
• D) calculated by subtracting current liabilities from current assets.

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Definitions:

Relevant Costs

Costs that should be considered when making business decisions because they will be affected by the decision.

Direct Material Costs

Direct material costs are the expenses for raw materials that can be directly traced to the production of specific goods or services.

Variable Manufacturing Overhead

Costs of manufacturing that vary directly with the level of production, aside from direct labor and materials.