If a Company Uses Cash to Pay Off Some of Its

question 87

Multiple Choice

If a company uses cash to pay off some of its accounts payables,what effect will this have on its liquidity ratios,given that the ratios exceeded 1 before the payoff?

• A) The quick ratio and current ratio will both increase.
• B) The quick ratio and current ratio will both decrease.
• C) The quick ratio will increase but the current ratio will remain unchanged.
• D) The current ratio will increase but the quick ratio will remain unchanged.

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Definitions:

Indirect Manufacturing Cost

Costs related to the production process that cannot be directly traced to specific products, such as utilities or supervision, often referred to as manufacturing overhead.

Conversion Costs

The sum of direct labor and manufacturing overhead costs. These are the costs incurred to convert raw materials into finished goods.

Contribution Margin

The gap between sales income and variable expenses, showing the extent to which income helps in covering fixed expenses.

Standard Cost Formula

A predefined cost based on historical data, industry standards, and projected material, labor, and overhead costs, used for budgeting and cost management.