Question 1

You should keep reserves of at least ________.
A) 3 months of fixed operating costs
B) 6 months of fixed operating costs
C) one half of the start-up investment
D) one year of fixed operating costs

Accepted Answer

C

Question 2

Business start-up cost information can be obtained from ________.
A) advisors
B) quotations from vendors
C) industry data
D) All of the above.

Accepted Answer

Business start-up cost information can be obtained from advisors, quotations from vendors, and industry data. It is best to gather information from various sources to get a complete and accurate picture of the costs involved in starting a business.

Question 3

A critical cost for a beginning business is the seed capital.

Accepted Answer

Seed capital refers to the initial money invested in a business to get it started. It is a critical cost for a beginning business.

Question 4

Start-up investment is the one-time expense of opening a business. It is also called ________.
A) entry cost
B) seed capital
C) down payment
D) beginning capital

Accepted Answer

Start-up investment is also called seed capital.

Question 5

A litmus test for profitability is ________.
A) the business plan
B) the economics of one unit (EOU)
C) the business model
D) net profit

Accepted Answer

The economics of one unit (EOU) is a litmus test for profitability, as it analyzes the revenue and costs of one unit of a product or service to determine if it can generate a profit. The business plan and business model are important for overall success, while net profit is a result of profitability rather than a test for it.

Question 6

Explain the concept of payback period.

Accepted Answer

The answer of Explain the concept of payback period....

Question 7

The Thomas Register of American Manufacturers lists companies that specialize in creating ________.
A) products
B) prototypes
C) copyrights
D) services

Accepted Answer

The answer of The Thomas Register of American Manufacturers lists...

Question 8

If you sell $2500 worth of product, pay COGS of $800 and other variable costs of $360, what is your gross profit?
A) $1340
B) $1700
C) $2464
D) $2500

Accepted Answer

Gross profit = Sales - COGS - Other variable costs= $2500 - $800 - $360= $1340

Question 9

Which two categories below are used for business costs?
A) materials and labor
B) gross and net
C) fixed and variable
D) cost of goods sold and administrative

Accepted Answer

Fixed and variable costs are the two categories commonly used for business costs. Materials and labor are specific costs that fall under these categories, but are not overarching categories themselves. Gross and net refer to overall revenue or profit, rather than specific costs. Cost of goods sold and administrative are specific categories of expenses, but do not encompass all business costs.

Question 10

The bedrock principle of business is that it should ________.
A) please its customers
B) advertise better than its competitors
C) earn a profit
D) continually improve

Accepted Answer

While pleasing customers, advertising, and improving the business are all important goals, the ultimate goal of a business is to earn a profit. Without profit, a business cannot sustain itself and continue to provide goods and services to customers.

Question 11

A(n) ________ is a model or pattern that serves as an example of how a product would look and operate if it were manufactured.
A) prototype
B) archetype
C) typology
D) model

Accepted Answer

A prototype is specifically designed to be an example or preliminary version of a product that is used for testing, evaluating, and refining before the final product is created. While archetypes, typologies, and models can also be used as examples, they do not necessarily have the same level of functionality or specificity as a prototype.

Question 12

________ will tell you how long it will take you to earn enough profit to cover your start-up investment.
A) Return on sales
B) Return on assets
C) Payback
D) ROI

Accepted Answer

Payback is a financial metric that calculates the amount of time it will take for a company to recover its initial investment (or cost). It determines how quickly the company will generate enough cash inflows to recoup the initial cash outflow. Therefore, option C is the correct answer. Options A, B, and D are all related to profitability ratios or measures, which are different from the payback period.

Question 13

What are variable costs? How are they broken down?

Accepted Answer

The answer of What are variable costs? How are they...

Question 14

The cost of material used to make a product and cost of labor used to make the product is associated specifically with a single ________ of sale.
A) unit
B) hour
C) dozen
D) dollar

Accepted Answer

The cost of material and labor is typically associated with a single unit of sale, meaning the cost is calculated based on the materials and labor used to make one unit of the product. The other options (hour, dozen, dollar) do not necessarily correspond to a specific quantity of product being sold, and therefore cannot accurately represent the cost of material and labor per unit of sale.

Question 15

Variable costs are expenses that must be paid regardless of whether sales are being generated.

Accepted Answer

Variable costs are expenses that vary with the level of production or sales. They increase or decrease as the volume of production or sales changes. Examples of variable costs include raw materials, labor, and direct production expenses.

Question 16

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) = $500, Depreciation = $0. What is Carla's monthly cost of goods sold?
A) $800
B) $600
C) $450
D) $100

Accepted Answer

Cost of goods sold = total expenses related to producing and selling the products.

Total revenue = $4,500
Number of customers = 1,000

Therefore, revenue per customer = $4.50

Cost of goods sold = cost of beverages + any other costs directly related to producing the products.

Cost of beverages = $800 (given in the question)

Therefore, cost of goods sold = $800

(Note: None of the other expenses listed are directly related to producing the products, so they are not included in the calculation of cost of goods sold.)

Question 17

Depreciation is a(n) ________.
A) fixed operating cost
B) variable cost
C) flexible cost
D) administrative cost

Accepted Answer

Depreciation is a fixed cost as it represents the decrease in value of an asset over time due to wear and tear, obsolescence or any other factor. This decrease in value is a fixed cost that does not change with changes in production or sales volume. Therefore, option A is the correct choice.

Question 18

Other variable costs per unit subtracted from Total COGS per unit equals ________.
A) cost of goods sold per unit
B) contribution margin per unit
C) total other variable costs per unit
D) operating margin per unit

Accepted Answer

Contribution margin per unit is calculated by subtracting the variable costs per unit from the selling price per unit. When subtracting other variable costs per unit from the total cost of goods sold (COGS) per unit, you're essentially calculating the portion of sales revenue that is not consumed by variable costs, thus contributing to covering fixed costs and profit, which aligns with the definition of contribution margin per unit.

Question 19

There are two categories of variable costs: ________.
A) net variable costs and cost of goods sold
B) gross costs and net variable costs
C) cost of goods sold and other variable costs
D) interest and taxes paid

Accepted Answer

The two categories of variable costs are usually cost of goods sold (COGS) and other variable costs, such as direct labor and materials, utilities, and marketing expenses. Option A is incorrect as net variable costs are not a category of variable costs but a calculation that considers the difference between revenue and variable costs. Option B is incorrect as there is no such thing as gross costs in the context of variable costs. Option D is incorrect as interest and taxes paid are not variable costs but fixed costs.

Question 20

It is wise to keep a reserve equal to one-fourth of the start-up investment.

Accepted Answer

The general recommendation is to keep a reserve equal to six months of operating expenses, not a specific fraction of the start-up investment. This amount can vary based on the business's cash flow and expenses.

Quiz 7: Understanding and Managing Start-Up, Fixed, and Variable Costs

You should keep reserves of at least ________.

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

A critical cost for a beginning business is the seed capital.

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

A litmus test for profitability is ________.

Explain the concept of payback period.

The Thomas Register of American Manufacturers lists companies that specialize in creating ________.

If you sell $2500 worth of product, pay COGS of $800 and other variable costs of $360, what is your gross profit?

Which two categories below are used for business costs?

The bedrock principle of business is that it should ________.

A(n) ________ is a model or pattern that serves as an example of how a product would look and operate if it were manufactured.

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

What are variable costs? How are they broken down?

The cost of material used to make a product and cost of labor used to make the product is associated specifically with a single ________ of sale.

Variable costs are expenses that must be paid regardless of whether sales are being generated.

Depreciation is a(n) ________.

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

There are two categories of variable costs: ________.

It is wise to keep a reserve equal to one-fourth of the start-up investment.