The Current Ratio

question 16

Multiple Choice

The current ratio:

• A)Is computed by dividing current assets by current liabilities.
• B)Is computed by subtracting current liabilities from current assets.
• C)Remains unchanged throughout the operating cycle.
• D)Is a measure of short-term profitability.

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Definitions:

Lean Production

A management approach that organizes resources such as people and machines around the flow of business processes and that only produces units in response to customer orders.

Inventories

Items such as raw materials, work-in-progress, and finished goods that a company holds for sale in the ordinary course of business.

Net Operating Income

The total profit of a company after operating expenses are subtracted from total revenue but before deducting taxes and interest.

Absorption

The process in cost accounting of allocating all manufacturing costs, both fixed and variable, to individual units of production.