Chapter 4, Problem 1AA

To determine

Cost of Goods Sold (COGS) or Cost of Sales:

The direct cost incurred in the production of goods. It involves labor cost, material cost, direct factory overheads. The purpose of finding the COGS is to compute the “true cost” of goods sold. It supports the management in monitoring the purchase cost of inventory.

Current Ratio:

It is ratio which gives idea about the ability of company to pay it liabilities. Formula to calculate current ratio is,

  $\text{Current}\text{ratio}=\frac{\text{Current}\text{assets}}{\text{Current}\text{liabilities}}$

Acid Test Ratio:

It measures whether a company is able to use cash or its liquid assets or paying off current liabilities. Formula to calculate acid test ratio is,

  $\text{Acid}\text{test}\text{Ratio}=\frac{\text{Current}\text{assets}-\left(\text{Stock}+\text{Prepaid}\text{expenses}\right)}{\text{Current}\text{Liabilities}}$

1.

To compute: Net cost of goods purchased.

2.

To determine

To compute: Current ratio and acid test ratio for two years.

3.

To determine

To compute: Current ratio and acid test ratio for year.2016.