What Is the Purpose of Computing the Current Ratio

question 128

Multiple Choice

What is the purpose of computing the current ratio?

• A) To provide investors with some measurement of the returns they can expect from their investment
• B) To measure the extent to which a firm is financed through borrowed money
• C) To measure how much cash the firm has
• D) To measure the firm's ability to meet emergency demands for cash
• E) To measure the firm's ability to meet its current obligations out of its current assets

---

Definitions:

Incurred

Refers to costs or expenses that have been acquired or accumulated as a result of undertaking specific activities or operations.

Underapplied

Refers to a situation where the allocated or applied overhead costs are less than the actual overhead costs incurred.

Overapplied

Refers to a situation where the allocated costs exceed the actual costs incurred, often seen in manufacturing and budgeting.

Manufacturing Overhead

All indirect factory-related costs associated with the production of a product, including costs related to indirect materials, indirect labor, and other overhead expenses.