Deck 2: Developing a Business Plan: Cost-Volume-Profit Analysis

Question 1

Instead of rushing into a business right away, it is wise to develop a ____________________.

Answer 1

business plan

Question 2

A ____________________ describes a business' goals and its plans for achieving those goals.

Answer 2

business plan

Question 3

____________________ refers to the uncertainty about the future operations of a business.

Answer 3

Risk

Question 4

____________________ is money that investors will receive back from their investment and credit decisions.

Question 5

The ____________________ shows how the business will make sales and how it will influence and respond to market conditions.

Question 6

The _________________________ describes how the business will promote, price and distribute the product.

Question 7

The ____________________ describes the predicted growth, market share and sales of the business' products by period.

Question 8

The _________________________ section of a business plan includes a description of the relationships between the business, its suppliers, its customers, as well as a description of how the business will develop, service, protect and support its products or services.

Question 9

The business operations section of the business plan helps _______________________ evaluate the entrepreneur's ability to successfully carry out the idea.

Question 10

The main problem of environmental management accounting is that there is a lack of a _________________________ of environmental costs.

Question 11

The ____________________ section of a business plan identifies the business' capital requirements and sources of capital, as well as describing the business' projected financial performance.

Question 12

____________________ is the business' funding.

Question 13

____________________ is the business' funding that will be repaid within a year or less.

Question 14

Credit from suppliers is a source of____________________ for the business.

Question 15

____________________ is the business' funding that will be repaid after more than a year.

Question 16

It is important that the financial plan is ____________________ with the information in the other sections of the business plan.

Question 17

The financial performance section of the financial plan includes projected financial statements supported by ____________________ and ____________.

Question 18

______________________________ shows how profit is affected by changes in sales volume, selling price of products and the various costs of the business.

Question 19

______________________________ are constant in total for a specific time period and are not affected by differences in volume during that same time period.

Question 20

The total ______________________________ is the difference between the total sales revenue and total variable costs.

Question 21

The first step in starting a business is to develop a detailed business plan.

Question 22

The first step in starting a business is to set up a corporation.

Question 23

A business plan is a static document. Once created it should not need to be updated.

Question 24

A business plan typically includes a description of the business, a marketing plan, an operating plan, an environmental management plan and a financial plan.

Question 25

A business plan should be viewed as an opportunity to identify mistakes before they could happen.

Question 26

The operating plan provides evidence of demand for the business' products or services.

Question 27

Projecting a business' financial performance involves uncertainty but if guidelines are followed this uncertainty can be eliminated in the financial information.

Question 28

Cost-volume-profit analysis is based on a simple profit calculation involving revenues, expenses, assets and liabilities.

Question 29

The relationship between an activity's cost and its profit helps us determine the cost's behaviour pattern.

Question 30

A fixed cost does not respond to changes in an activity for a specific time period such as sales volume.

Question 31

A fixed cost responds directly to changes in an activity for a specific time period such as sales volume.

Question 32

The relevant range is the range of activity levels over which the particular fixed cost behaviour pattern remains valid.

Question 33

A variable cost responds directly to changes in an activity such as sales volume.

Question 34

Total contribution margin is the amount remaining after a sale to contribute to covering fixed costs.

Question 35

Sales less fixed costs equal contribution margin.

Question 36

Sales less variable costs equal contribution margin.

Question 37

The break-even point is where total revenue equals variable costs.

Question 38

The break-even point is where total revenue is less than total costs.

Question 39

The break-even point is where total revenue equals target profit.

Question 40

The break-even point is sales volume at which the total contribution margin is equal to total fixed costs.

Question 41

Each additional unit sold above the break-even sales volume increase profit by the contribution margin per unit.

Question 42

Each additional unit sold above the break-even sales volume increase profit by the sales price per unit.

Question 43

Each additional unit sold above the break-even sales volume increase profit by the variable cost per unit.

Question 44

CVP analysis is a helpful tool, but is most effective when used in conjunction with critical thinking.

Question 45

Before making a pricing decision, one should consider the impact on customers' interest in the product.

Question 46

If a business were concerned about raising the price of their goods, CVP analysis would help determine the impact on profits and the resulting changes in costs.

Question 47

CVP should be the only factor that influences business decisions.

Question 48

After weighing all factors surrounding alternatives, a manager may choose a more socially acceptable alternative resulting in a less favourable profit.

Question 49

A business plan:

A) never needs updating once it has been developed.
B) is only useful for companies.
C) is another name for a financial plan.
D) should be developed as the first step in starting a business.

Question 50

Which of the following would NOT be included in a typical business plan?

A) The marketing plan.
B) The financial plan.
C) The weekly sales plan.
D) The operating plan.

Question 51

Investors and creditors have the following two related concerns when they are making investment and credit decisions:

A) sales and profit.
B) performance and position.
C) risk and return.
D) environment and return.

Question 52

The financial plan describes the projected financial performance and:

A) shows how the business will respond to market conditions.
B) how the business will develop its products or services.
C) identifies capital requirements and sources of capital.
D) provides evidence of demand for products or services.

Question 53

For a specified time period, fixed costs:

A) are not affected by differences in sales volume.
B) move in the opposite direction to changes in sales volume.
C) change in proportion with changes in sales volume.
D) are fixed per unit of sales volume.

Question 54

Which of the following best represents an example of a fixed cost?

A) Equipment.
B) Cost of products sold to customers.
C) Salary plus commission employees.
D) Telephone usage.

Question 55

Total variable costs:

A) do not respond to changes in volume.
B) move in the opposite direction to changes in volume.
C) change in direct proportion with changes in volume.
D) will always be the same from one period to the next.

Question 56

Which of the following best represents an example of a variable cost?

A) Equipment.
B) Cost of products sold to customers.
C) Manager's salary.
D) Rent.

Question 57

Which of the following costs change directly in proportion to sales volume?

A) Both fixed costs and variable costs.
B) Total variable costs.
C) Contribution margin per unit.
D) Fixed costs.

Question 58

The unit sales volume at which a business earns zero profit is called:

A) Zero-profit point.
B) Total costs.
C) Contribution margin per unit.
D) Break-even point.

Question 59

The profit equation for a given sales volume is:

A) [Selling price per unit x volume] + [variable cost per unit x volume] - total fixed costs.
B) [Selling price per unit x volume] - [break even point] - total fixed costs.
C) [Selling price per unit x volume] + [break even point] + total fixed costs.
D) [Selling price per unit x volume] - [variable cost per unit x volume] - total fixed costs.

Question 60

Barb's Best Pies sells a meat pie for $5.00. Variable costs are $3.00 per unit and fixed costs for the period are $4000. The profit on the 2001st pie sold is:

A) $2.00.
B) $5.00.
C) $3.00.
D) $ - 0 -.

Question 61

Widget World makes a widget that is sells for $10 per unit. The variable costs are $7 per unit. Assuming the business has normal fixed costs, and the break-even point is 350 units, what are the total costs at break even?

A) $4500.
B) $3500.
C) $12 000.
D) $7500.

Question 62

Example 2.1
The information below is used for the following problems.
Leslie's Soccer Balls sells soccer balls for $20 each and incurs variable costs of $15 per ball. Leslie's break-even point is 40 000 units.

-Refer to Example 2.1. What is the total of Leslie's fixed costs?

A) $2 000.
B) $8 000.
C) $200 000.
D) $800 000.

Question 63

Example 2.1
The information below is used for the following problems.
Leslie's Soccer Balls sells soccer balls for $20 each and incurs variable costs of $15 per ball. Leslie's break-even point is 40 000 units.

-Refer to Example 2.1. What is Leslie's profit when 50 000 units are sold?

A) $10 000.
B) $50 000.
C) $250 000.
D) $1 000 000.

Question 64

Example 2.1
The information below is used for the following problems.
Leslie's Soccer Balls sells soccer balls for $20 each and incurs variable costs of $15 per ball. Leslie's break-even point is 40 000 units.

-Refer to Example 2.1. What is Leslie's profit when 25 000 units are sold?

A) $500 000.
B) $125 000.
C) $75 000 loss.
D) $300 000 loss.

Question 65

Example 2.2
The information below is used for the following problems.
Garrison's Gaskets has variable costs of $3 per unit and fixed costs of $40 000. Garrison's selling price is $5 per unit.

-Refer to Example 2.2. What is Garrison's break-even point?

A) 8000 units.
B) 13 333 units.
C) 20 000 units.
D) 80 000 units.

Question 66

Example 2.2
The information below is used for the following problems.
Garrison's Gaskets has variable costs of $3 per unit and fixed costs of $40 000. Garrison's selling price is $5 per unit.

-Refer to Example 2.2. How many units will Garrison's have to sell in order to earn a profit of $100 000?

A) 20 000 units.
B) 50 000 units.
C) 70 000 units.
D) 200 000 units.

Question 67

Example 2.2
The information below is used for the following problems.
Garrison's Gaskets has variable costs of $3 per unit and fixed costs of $40 000. Garrison's selling price is $5 per unit.

-Refer to Example 2.2. How much profit will Garrison's earn if it cuts its selling price to $4 per unit, and sells 100 000 units?

A) $60 000.
B) $100 000.
C) $360 000.
D) $400 000.

Question 68

What are the three main purposes of a business plan? Discuss each of the three purposes.

Question 69

What are the two primary concerns of investors? Discuss each.

Question 70

What are the five parts of the business plan? Discuss each.

Question 71

What is the purpose of the description of the business section of the business plan?

Question 72

What is the purpose of the marketing plan section of the business plan?

Question 73

Doggie Donuts sells treats for pets for $5 per box. The variable costs per box are $3. Doggie Donuts' fixed costs total $20 000.
a. Calculate the contribution margin per box.
b. Calculate the break-even point in boxes.
c. Calculate the profit that Doggie would earn if sales total 30,000 units.

Question 74

Bill produces a miracle tool. His variable costs are $20 per unit and his fixed costs are $22 500. His break-even point is 30 000 units.
a. What is Bill's selling price per unit?
b. What is Bill's profit at 50 000 units of sales?
c. What would Bill's profits at 50 000 units of sales be if Bill were able to reduce his variable costs by $5 per unit?

Question 75

If variable costs increase, and fixed costs and the selling price remain constant, what will happen to the break-even point? What will happen to profits?

Question 76

If fixed costs increase, variable costs and the selling price remain constant, what will happen to the break-even point? What will happen to profits?

Question 77

Suppose that your business profits are less than the desired amount. What actions might you take to raise profits, if you do not want to change products?

Question 78

Bob's variable costs are $7 per unit. His selling price is $9 per unit. His break-even point is 25 000 units.
a. What is the amount of Bob's fixed costs?
b. What is Bob's profit when he sells 30 000 units?
c. What would Bob's profit be if he were able to raise prices to $10 per unit and had sales of 40 000 units?

Question 79

Bob's variable costs are $7 per unit. His selling price is $9 per unit. His break-even point is 25 000 units.

-suppose that Bob is able to make some changes to his business by increasing his original selling price by $0.50 per unit, decreasing his variable costs by $0.50 per unit and increasing his fixed costs by $10 000.
a. What is Bob's new break-even point in units?
b. What is Bob's profit when he sells 30 000 units?
c. Assuming Bob believes he can sell 30 000 units, should Bob make the changes to his business?