Deck 12: Understanding and Managing Start-Up, Fixed, and Variable Costs

Question 1

Carla sells hot coffee, cider and tea from a sidewalk cart near Wall Street in New York City. Last month she sold $4,500 worth of product to 1,000 customers. She spent $800 on buying her beverages in bulk. Her monthly costs are: Utilities = $100, Salary = $2,000, Advertising = $0, Insurance = $0, Interest = $0, Rent (cart) = $600, Depreciation = $0. Calculate Carla's average sale per customer.

A) $5.00
B) $4.00
C) $4.50
D) $4.67

Answer 1

C

Question 2

Total Revenue - ________ = Total Gross Profit

A) Total operating costs
B) Total units sold
C) Total cost of goods sold
D) Total materials cost

Answer 2

C

Question 3

Which of the following is not a category of fixed costs?

A) Depreciation
B) Utilities
C) Capital
D) Raw materials

Answer 3

C

Question 4

Start-up investment is the one-time expense of opening a business. It is also called ________.

A) Down payment
B) Seed capital
C) Entry cost
D) Initial deposits

Question 5

If you sell $2,500 worth of product, pay COGS of $800 and other variable costs of $360, what is your gross profit?

A) $2,464
B) $1,700
C) $1,340
D) $2,140

Question 6

Carla sells hot coffee, cider and tea from a sidewalk cart near Wall Street in New York City. Last month she sold $4,500 worth of product to 1,000 customers. She spent $800 on buying her beverages in bulk. Her monthly costs are: Utilities = $100, Salary = $2,000, Advertising = $0, Insurance = $0, Interest = $0, Rent (cart) = $600, Depreciation = $0. What is Carla's monthly cost of goods sold?

A) $800
B) $100
C) $450
D) $1,500

Question 7

Fernando plans to sell hot coffee, cider and tea from a sidewalk cart near Wall Street in New York City. Each month he expects to sell $20,000 of product to 4,000 customers. He spent $4,000 on buying his beverage and supplies in bulk for the first month. The rental deposit on the cart was $4,000 and Fernando spent $500 to customize it. He bought a laptop, printer and software for $1,000 and paid a total of $1,000 for licenses. He has $500 in petty case for start up. His monthly costs are: Utilities = $500, Salary = $4,000, Advertising = $0, Insurance = $500, Interest = $0, Rent (cart) = $2,000, Depreciation = $0. Calculate Fernando's start-up costs without a reserve.

A) $18,000
B) $14,000
C) $12,500
D) $11,000

Question 8

A litmus test for profitability is the ________.

A) Economics of one unit (EOU)
B) The money borrowed (IOU)
C) A focus on quality
D) Optional features

Question 9

There are two categories of variable costs: ________.

A) Gross costs and net variable costs
B) Net variable costs and cost of goods sold
C) Cost of goods sold and other variable costs
D) Gross variable costs and net costs

Question 10

Overhead is another term for ________.

A) Seed capital
B) Net costs
C) Fixed operating costs
D) Management

Question 11

Other variable costs per unit subtracted from Total COGS per unit equals ________.

A) Total other variable costs per unit
B) Contribution margin per unit
C) Cost of goods sold per unit
D) Operating profit per unit

Question 12

An example of a service business's unit of sale would be one ________ of service.

A) Dozen
B) Hour
C) Crate
D) Gross

Question 13

Why is it best to pay expenses for your business with a check, not with cash?

A) A check can't be traced.
B) A check provides written proof of payment.
C) Cash is easier to lose.
D) Cash payments are always applied more slowly.

Question 14

If you sell $2,500 of product, pay COGS of $800 and other variable costs of $450, what is your contribution margin in percentage form?

A) 25.5%
B) 50.0%
C) 20.3%
D) 33.3%

Question 15

If you sell $2,500 of product, pay COGS of $800 and other variable costs of $450, what is your contribution margin in dollars?

A) $1,700
B) $2,050
C) $1,250
D) $2,450

Question 16

The method used to save money that will be needed to replace expensive pieces of equipment is called ________.

A) Inventory
B) Deductible
C) Depreciation
D) Amortization

Question 17

Which two categories below are used for business costs?

A) Gross and net
B) Fixed and variable
C) Materials and labor
D) Pre-tax and after-tax

Question 18

If a business sells 5,000 units for a total profit of $200,000, what is its profit per unit?

A) $400
B) $50
C) $40
D) None of the above

Question 19

If a business has total gross profit of $14,720 and total operating costs of $11,500, what is its total profit?

A) $3,220
B) $3,000
C) $1,150
D) $26,220

Question 20

Carla sells hot coffee, cider and tea from a sidewalk cart near Wall Street in New York City. Last month she sold $4,500 worth of product to 1,000 customers. She spent $800 on buying her beverages in bulk. Her monthly costs are: Utilities = $100, Salary = $2,000, Advertising = $0, Insurance = $0, Interest = $0, Rent (cart) = $600, Depreciation = $0. What are Carla's fixed costs?

A) $3,000
B) $2,700
C) $2,000
D) $3,500

Question 21

The current value of a proposed investment may be calculated as its ________.

A) Internal rate of return (IRR)
B) Present value (PV)
C) Net present value (NPV)
D) Return on investment (ROI)

Question 22

A prototype ________.

A) Is a model or pattern
B) Serves as an example of how a product would look if it were produced
C) Serves as an example of how a product would operate if it were produced
D) All of the above

Question 23

________ will tell you how long it will take you to earn enough profit to cover your start-up investment.

A) Payback
B) ROI
C) Return on sales
D) Return on assets

Question 24

Jarvis is starting a business requiring initial start-up of $5.5 million. The business is projecting a net cash flow per month of $100,000. How many months will it take to make back his start-up investment?

A) 5.5
B) 55
C) 20
D) None of the above

Question 25

Which of the following would be a start-up cost for an internet business?

A) Computers
B) A URL
C) Licenses
D) All of the above

Question 26

The NPV of an initial investment of $1,500,000 with a 10% required rate of return over 10 years is calculated at $120,000. What should the company do?

A) Invest - the NPV is greater than $0.
B) Not invest - the NPV is less than the 10% stated.
C) Find a way to reduce the initial investment to $1,200,000 and still yield the same amount.
D) None of the above

Question 27

________ is the general rise in the price of goods and service in an economy.

A) Inflation
B) Deflation
C) Tabulation
D) Fixation

Question 28

The estimated time required to earn sufficient net cash flow to cover the start-up investment is called the repayment period.

Question 29

Expenses associated with materials and direct labor for production until the products are sold are called fixed operating costs.

Question 30

Leasehold improvements are a start-up expense.

Question 31

What is the estimated time required to earn sufficient net cash flow to cover the start-up investment?

A) Repayment estimate
B) Payback period
C) Net cash flow period
D) Recovery period

Question 32

A cash reserve is also known as a(n) ________.

A) Emergency fund
B) Pool of cash resources
C) Contingency fund
D) All of the above

Question 33

One of the most important things an entrepreneur learns is keeping accurate records of the money flowing in and out of a business. Keeping numerical records is called ________.

A) Cost analysis
B) Cash flow analysis
C) Accounting
D) Reconciliation

Question 34

You should keep reserves of at least ________ and ________.

A) 6 months of fixed operating costs, one half of the start-up investment
B) 3 months of fixed operating costs, 3/4 of the start-up investment
C) One year of fixed operating costs, one half the start-up investment
D) 3 months of fixed operating costs, one half of the start-up investment

Question 35

Maintaining a cash reserve at start-up is considered to be a poor management practice.

Question 36

A suggested allowance for contingencies and emergencies at start-up is ________ percent of estimated start-up costs, although more is better.

A) 5
B) 10
C) 25
D) 40

Question 37

Uses for a cash reserve include ________.

A) Planned leasehold improvements
B) Taking advantage of unforeseen opportunities
C) Routine expenses
D) Seed capital

Question 38

Seed capital is the start- up investment or one-time expense of opening a business.

Question 39

Fixed Operating Costs ________.

A) Are not included in COGS
B) Include expenses like the DSL bill and rent
C) Are not direct costs of creating each product
D) All of the above.

Question 40

Business start-up cost information can be obtained from ________.

A) Competitors
B) Industry data
C) Quotations from vendors
D) All of the above

Question 41

Under the accrual method of accounting transactions are recorded at the time of occurrence.

Question 42

Describe how an entrepreneur should protect his/her financial records.

Question 43

What is the reason to calculate the payback period and the net present value (NPV) for a business investment?

Question 44

Net profit is calculated before taxes are taken into consideration.

Question 45

Fixed operating costs can change over time.

Question 46

Inflation has no effect on small business.

Question 47

Give three reasons to keep good records every day

Question 48

List 10 categories of start-up costs that are common to many businesses.

Question 49

What is the difference between cash accounting and the accrual method?

Question 50

Paying cash for business purchases is highly recommended over paying via check or electronic transfer.