Deck 10: The Financial Plan

Question 1

Capital budgeting and decision making is complicated and therefore use of an accountant is recommended.

Answer 1

True

Question 2

Selling expense is an expense that can be expected to remain stable over time.

Answer 2

False

Question 3

An entrepreneur focuses on the operating costs before completion of the sales budget.

Answer 3

False

Question 4

Capital budgets project expenditures on new equipment,vehicles,computers,or new facilities.

Question 5

Costs of goods sold should be calculated using actual cost figures;using industry standard figures is too inaccurate.

Question 6

When developing operating and capital budgets,the entrepreneur can seek advice from experts,but should retain the final say so.

Question 7

For the Internet start-up,capital budgeting and operating expenses will tend to be consumed by equipment purchasing or leasing,inventory,and advertising expenses.

Question 8

In projecting the operating expenses for the second and third year,it is helpful to first look at those expenses that will likely change over time.

Question 9

A reasonable profit that is earned with conservative estimates is not considered to be an initial success for a new venture.

Question 10

Depreciation is considered a cash outlay,not an expense.

Question 11

Cash flow is the same thing as profit.

Question 12

In an Internet start-up,advertising costs will be extensive to create awareness of the website.

Question 13

The indirect method of projecting cash flow uses a simple determination of cash in less cash out.

Question 14

Many profitable firms fail because of lack of cash.

Question 15

The first step in preparing a pro forma income statement is to separate fixed and variable costs.

Question 16

Cash flow is the result of subtracting expenses from sales.

Question 17

The cost of goods sold expense can be determined either by directly computing the variable cost of producing a unit times the number of units sold or by using an industry standard percentage of sales.

Question 18

To satisfy outside investors,the financial plan will need three years of projected financial data.

Question 19

When estimating expenses for the pro format income statement,it is best to be conservative.

Question 20

The indirect method of projecting cash flow is the most popular.

Question 21

The pro forma balance sheet depicts the condition of the business at one point in time.

Question 22

Microsoft Excel is a software package that includes manufacturing,order entry,and billing functions and it is usually too expensive for start-up firms.

Question 23

When projecting cash flows for the pro forma cash flow statement,it is important to be conservative in the estimates.

Question 24

Pro forma sources and applications of funds summarizes all the projected sources of funds available to the venture and how these funds will be disbursed.

Question 25

Sales in excess of the break-even point will result in a profit,as long as the selling price remains above the cost to produce each unit.

Question 26

Using a spreadsheet software package is helpful when developing budgets as it helps to gauge the impact of different financial scenarios.

Question 27

Profit from the business will be included on the balance sheet in the assets section.

Question 28

In projecting cash flows the most difficult problem is in determining the exact amount of monthly receipts and disbursements.

Question 29

Assets represent the net worth of the firm.

Question 30

Any amount due within a year is considered a current liability.

Question 31

Owner equity is the excess of all assets over all liabilities.

Question 32

Depreciation is considered a source of funds because it does not represent an out-of-pocket expense.

Question 33

Cash is a current asset.

Question 34

Large positive cash flows usually occur in the first months of a new venture.

Question 35

Inventory is considered a source of funds because of the revenue it brings in.

Question 36

Rent and insurance are examples of variable costs.

Question 37

The purpose of the pro forma sources and applications of funds statement is to show the relationship between revenue and expenses.

Question 38

As long as the selling price is less than the variable cost per unit,some contribution will be made to cover fixed costs.

Question 39

Break-even is that volume of sales at which there are neither profits nor losses.

Question 40

Break-even analysis is a technique to determine the total liabilities of the firm.

Question 41

The _____ method is the most popular method used to project cash flow.

A)direct
B)indirect
C)depreciation-adjusted
D)present value method

Question 42

______ is(are)the major source of revenue.

A)Borrowing from banks
B)Outside investors' contributions
C)Sales
D)Dividends

Question 43

Pro forma cash flow is

A)cash flow based on the actual.
B)calculated from subtracting assets from liabilities.
C)cash flow calculated on past receipts and expenses.
D)projected cash inflow and outflow.

Question 44

Capital budgets project expenditures on:

A)new equipment.
B)future production costs.
C)advertising.
D)costs of goods solD.

Question 45

Fixed operating expenses include all of the following except:

A)Rent
B)Utilities
C)Raw Materials
D)Depreciation

Question 46

The pro forma cash flow,like the _________,is based on best estimates.

A)business cash flow at a certain point of time
B)expense statement
C)income statement
D)actual cash flow statement

Question 47

Using the ________ method of projecting cash flow,adjustments are made to net income based on the fact that cash may not actually be received or disbursed.

A)indirect
B)breakeven
C)direct
D)pro forma

Question 48

The _____ budget is used to evaluate expenditures that will impact the business for more than one year.

A)production
B)operating
C)depreciation
D)capital

Question 49

The sales budget:

A)should be prepared before developing the pro forma income statement.
B)must be prepared by the venture's accounting firm.
C)must be based on actual sales figures for the last month.
D)needs to be prepared only in case of a manufacturing firm.

Question 50

______ is/are a cash disbursement and _____ is/are an operating expense.

A)Debt;interest
B)Amortization;salaries
C)Depreciation;rent
D)Depreciation;cost of goods sold

Question 51

______ is projected net profit calculated from projected revenue minus projected costs and expenses.

A)Pro forma Income
B)Gross profit
C)Net sales
D)Cost of goods sold

Question 52

Which of the following would be considered a variable expense?

A)Rent
B)Raw materials
C)Interest
D)Insurance

Question 53

One of the simplest and probably the most widely used small business accounting software package is Intuit's Quickbooks.

Question 54

In projecting operating expenses for the second and third year costs like ______ are likely to remain stable unless new equipment or additional space is purchased.

A)cost of goods sold
B)gross profit
C)advertising
D)insurance

Question 55

Fixed expenses:

A)are incurred regardless of sales volume.
B)can be estimated by taking into consideration the production.
C)includes labor,raw materials,and commissions.
D)must be linked to strategy in the business plan.

Question 56

Cash flow:

A)results from the differences between cash receipts and cash payments.
B)is the result of subtracting expenses from sales.
C)is the same as profit.
D)is the sum total of all sales at a point in time.

Question 57

Negative cash flow:

A)results when cash receipts exceed cash payments.
B)can cause a firm to fail.
C)is included in the pro forma income statement.
D)is common for a business during its phase of expansion.

Question 58

The _____ budget is used to project cash flows for the cost of goods produced.

A)operating
B)production
C)capital
D)depreciation

Question 59

As the business grows:

A)selling expenses should go down.
B)salaries and wages will go up as output increases.
C)the pro forma income statement becomes unimportant.
D)advertising expenses should go down.

Question 60

Zappos,under a cash flow crunch,was bought out by _______.

A)Google
B)Microsoft
C)Amazon
D)Netflix

Question 61

A _____________ summarizes all the projected sources and applications of funds available to the venture and how these funds will be disbursed.

A)Pro forma income statement
B)Pro forma sources and applications of funds statement
C)Break-even analysis
D)Cash flow statement

Question 62

The marginal contribution is defined as:

A)selling price per unit minus variable cost per unit
B)total fixed costs minus selling price per unit
C)variable cost per unit minus the selling price per unit
D)total fixed costs plus total variable costs

Question 63

________ represent(s)money that is owed to creditors.

A)Assets
B)Cash flow
C)Owner equity
D)Liabilities

Question 64

Fixed assets are those that:

A)are intangible.
B)include cash.
C)will be used over a long period of time.
D)are similar to loans and advances.

Question 65

Profit from the business would be included on the balance sheet in which section?

A)Assets
B)Liabilities
C)Owners equity
D)Assets or liabilities

Question 66

As long as the selling price is greater than the _______________ cost per unit,some contribution can be made to cover ________________.

A)fixed;variable costs
B)variable;fixed costs
C)total;expenses
D)fixed;negative cash flow

Question 67

The basic balance sheet relationship is:

A)assets plus owner's equity equal liabilities.
B)assets equal liabilities plus owner's equity.
C)assets plus liabilities equal owner's equity.
D)assets equal owner's equity minus liabilities.

Question 68

Current liabilities are:

A)those liabilities due for payment within a year.
B)everything owed to creditors.
C)everything of value owned by the company.
D)those liabilities that represent the excess over all assets.

Question 69

Notes payable is considered a(n)________ on the balance sheet.

A)cash out-flow
B)current asset
C)current liability
D)long-term liability

Question 70

Which of the following would be an application of funds?

A)Decrease in assets.
B)Increase in turnover.
C)Paying dividends.
D)Increase in liabilities.

Question 71

Equipment would be included on the balance sheet in which section?

A)current assets
B)fixed assets
C)retained earnings
D)owner's equity

Question 72

Which of the following would not be a current asset?

A)Certificates of deposit that mature in six months
B)Customer receivables
C)Cash
D)Supplier bills payable in thirty days

Question 73

If the total fixed costs are $850,000,the sale price is $110 and the variable cost per unit is 25,what is the breakeven volume?

A)17,000
B)10,000
C)7,000
D)1,000

Question 74

The contribution margin is:

A)Selling price minus variable cost per unit.
B)Selling price minus total fixed costs.
C)Variable cost per unit plus selling price.
D)Selling price minus total costs.

Question 75

Which of the following is likely to be a fixed cost?

A)Materials
B)Commissions
C)Depreciation
D)Direct labor

Question 76

The formula for break-even analysis is:

A)total fixed costs divided by selling price minus variable cost per unit.
B)total variable costs divided by marginal contribution.
C)total sales divided by selling price plus variable cost per unit.
D)total fixed costs divided by selling price plus marginal contribution.

Question 77

_________ is(are)added back to the pro forma sources and applications of funds statement because it does not represent and out-of-pocket expense.

A)Inventory
B)Depreciation
C)Dividends
D)Equipment purchases

Question 78

Owner's equity represents:

A)the net worth of the business.
B)only capital invested by the entrepreneur.
C)everything of value owned by the firm.
D)all assets owned by the entrepreneur.

Question 79

________ is the amount owners have invested and/or retained from the venture operations:

A)Cash flow
B)Retained earnings
C)Profit
D)Owner's equity

Question 80

______ is the volume of sales needed to cover total variable and fixed costs.

A)Cash flow
B)Depreciation
C)Revenue
D)Breakeven