Deck 7: Financial Management, Operational Decision Making, and Budgeting

Question 1

1 The fundamental rule of business is that the selling price must be:

A) At least the same as the cost
B) Higher than the cost
C) Lower than the cost
D) Whatever people are prepared to pay

Answer 1

B
Explanation: In order to make a profit, the selling price must be higher than the cost of producing the product or service. Choice A is incorrect because selling at the same price as the cost would be simply break-even, hence making no profit. Choice C is incorrect because selling at a price below cost results in a loss. Choice D is incorrect because the answer is not always true - because if people are only prepared to pay lower than the cost, the business is operating at a loss.

Question 2

2 Operational decision making is concerned with:

A) Health and safety, licensing and insurance
B) Planning, decision making, and control
C) Hiring and firing
D) None of the above

Answer 2

B
Explanation: Operational decision making is concerned with planning, decision making control. Answers a) and c) are relevant to sport facility management but are not forms of operational decision making.

Question 3

3 Businesses need to make a profit in order to:

A) Reinvest in their activities
B) Develop new products
C) Keep ahead of the game
D) All of the above

Answer 3

D
Explanation: You can never become complacent in business and rest on your achievements, nor can you take out all of your profits for your own benefits. Businesses need to evolve, to stay current and to anticipate future directions. For these reasons you should invest at least some of your profits in developing your business and building competitive advantage.

Question 4

4 The principal cause of business failure is:

A) The effect of competition
B) Poor quality staff
C) Not generating sufficient income to cover costs
D) Not having a very good idea in the first place

Question 5

5 A vendor sells hotdogs for $5 and the cost of sales is $2, how much contribution does the vendor generate when 150 hotdogs are sold?

A) $750
B) It all depends on the fixed costs
C) $300
D) $450

Question 6

6 The fixed costs of a swimming pool are $10,000 per month and each swim generates $10 in revenue and has a variable cost of $2. How many swims are needed per month to breakeven?

A) More information is needed to answer the question
B) 1,000
C) 1,250
D) 5,000

Question 7

7 A soccer match has an audience of 40,000 and 30,000 spectators are required to breakeven. Each ticket costs $40, which of the following best describes the margin of safety:

A) $40,000
B) 10,000 spectators
C) None of the above
D) Both a and b

Question 8

8 If a product costs $24 and can be sold for $60 what is the contribution to sales ratio?

A) 36%
B) 50%
C) 24%
D) 60%

Question 9

9 If a budget does not balance, what steps, if any, can be taken to bring income and expenditure into line?

A) Increase Income
B) Nothing
C) Decrease Expenditure
D) Both a and c

Question 10

10 When actual financial performance is worse than the budget you can take corrective action by :

A) Spending more on marketing and promotion
B) Reducing prices to attract more customers
C) Waiting to see what happens
D) a) and b)

Question 11

11 The majority of costs that sport facility managers will encounter are fixed. What are the implications for managers working in the industry?

Question 12

12 Explain what is meant by the breakeven point and the margin of safety. How does knowledge of these concepts help sport facility managers?

Question 13

13 Is budgeting an isolated mechanical exercise or an integral part of the business planning process?

Question 14

14 Consider a sports facility that you are familiar with. Can you think of at least 10 areas of running the business where financial skills are necessary for effective performance? What questions should a sport facility manager ask themselves as related to the level of skill they have in each area?