What Is the Effect of a Purchase of Inventory on Account

question 199

Multiple Choice

What is the effect of a purchase of inventory on account on the current ratio and on working capital,respectively? (Assume a current ratio greater than one prior to this transaction. ) $\begin{array}{lll}&\text { Current ratio}&\text { Working capital }\\\text { A) } & \text { decrease } & \text { no effect } \\\text { B) } & \text { no effect } & \text { decrease } \\\text { C) } & \text { decrease } & \text { decrease } \\\text { D) } & \text { no effect } & \text { no effect }\end{array}$

• A)Option A
• B)Option B
• C)Option C
• D)Option D

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Definitions:

Manufacturing Cost Elements

The primary components of manufacturing costs, typically including direct materials, direct labor, and manufacturing overhead.

Physical Unit Flow

A method of measuring and tracking the movement of physical units through a production process or system.

Unit Production Costs

The total cost associated with producing one unit of a product, including both direct costs like materials and labor, as well as allocated overhead.

Flow of Costs

The movement and assignment of costs through a company's production processes to its products or services.