The Acid-Test Ratio

question 2

Multiple Choice

The acid-test ratio:

• A) Is also called the quick ratio.
• B) Measures profitability.
• C) Measures inventory turnover.
• D) Is generally greater than the current ratio.
• E) Measures return on assets.

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Definitions:

Variable Component

A portion of a cost or expense that varies directly with changes in production volume, business activity, or other variables.

Least-Squares Regression

A statistical method used to determine a line of best fit by minimizing the sum of the squares of the differences between observed values and those predicted by the model.

Inspection Cost

Expenses associated with the activities necessary to ensure that products or services meet the required standards and specifications.

Contribution Format

A format for the income statement that divides variable costs from fixed costs to emphasize the contribution margin.