Chapter 5, Problem 1BTN

To determine

Concept Introduction:

Cost of goods sold: It refers to all the costs that a business incurred to produce a product. It is computed by using the following formula:

$\text{COGS}=\text{Beginning Inventory}+\text{Net Purchases}-\text{Ending Inventory}$

Current ratio: It is also known as working capital ratio and efficiency ratio which is used to compute company’s ability to pay current liabilities or short term liabilities out of its current assets. It covers all the current assets including inventory and prepaid expenses.

Acid test ratio: It is also known as liquidity ratio and is used to compute the ability of a company to pay its immediate liabilities out of its current assets. Current assets excludes inventory and prepaid expenses.

To Determine:

1. The net cost of goods purchased for the year ended September 26, 2015.

2. Current and acid test ratio related to year ended September 26, 2015 and September 27, 2014 and also, compare the same with the industry average of 1.5 for the current ratio and 125 for the acid test ratio.