Which of the Following Are Excluded from the Numerator in the Calculation

question 151

Multiple Choice

Which of the following are excluded from the numerator in the calculation of the acid-test ratio?

• A) inventory and accounts receivable
• B) prepaid expenses and cash
• C) inventory and prepaid expenses
• D) inventory and short-term investments

---

Definitions:

Operations

Refers to the day-to-day activities involved in running a business that lead to the production of goods and provision of services.

Variable Costing

A costing method that includes only variable manufacturing costs—direct materials, direct labor, and variable manufacturing overhead—in product costs.

Absorption Costing

A bookkeeping technique that encases the entirety of manufacturing expenses such as direct materials, direct labor, along with both variable and fixed overhead costs, in the product’s cost.

Divisional Segment Margin

A measure of the profitability of a specific division or segment within a company, usually calculated as the division's earnings before interest and taxes divided by its revenues.