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

Accepted Answer

The average sale per customer is calculated by dividing the total sales by the number of customers. In this case, $4,500 divided by 1,000 customers equals $4.50 per customer.

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

Accepted Answer

Total gross profit is calculated by subtracting the cost of goods sold from total revenue. Therefore, the correct choice is C – Total cost of goods sold.

Question 3

Which of the following is not a category of fixed costs?
A) Depreciation
B) Utilities
C) Capital
D) Raw materials

Accepted Answer

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

Accepted Answer

Start-up investment is also called seed capital. Down payment usually refers to a portion of the purchase price of a larger asset, such as a house. Entry cost and initial deposits are not commonly used terms to describe start-up investment.

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

Accepted Answer

Gross profit is calculated by subtracting the cost of goods sold (COGS) from the total sales revenue. In this case, $2,500 (sales) - $800 (COGS) = $1,700. Other variable costs are not included in the gross profit calculation.

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

Accepted Answer

Carla's monthly cost of goods sold can be calculated as follows:

Total revenue = $4,500 
Cost of goods sold = Total revenue - Gross profit
Gross profit = Total revenue - (Cost of goods sold + Monthly costs)

Monthly costs = Utilities + Salary + Advertising + Insurance + Interest + Rent + Depreciation
Monthly costs = $100 + $2,000 + $0 + $0 + $0 + $600 + $0 = $2,700

Cost of goods sold = $4,500 - ($800 + $2,700) = $1,000
Therefore, Carla's monthly cost of goods sold is $800.

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

Accepted Answer

Start-up costs include the initial expenses before operations begin and any additional expenses to get started. For Fernando, these are: $4,000 (beverage and supplies) + $4,000 (rental deposit) + $500 (customization) + $1,000 (laptop, printer, software) + $1,000 (licenses) + $500 (petty cash) = $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

Accepted Answer

The Economics of one unit (EOU) is a measure of profitability that examines the revenue and costs associated with producing one unit of a product or service. By analyzing the EOU, a business can determine if it is profitable to produce and sell each unit, which is an important litmus test for overall profitability. The other options (B, C, and D) are not directly related to measuring profitability.

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

Accepted Answer

The two categories of variable costs are cost of goods sold and other variable costs. Cost of goods sold includes the direct costs associated with producing a product, such as labor and materials, while other variable costs include expenses such as sales commissions and shipping costs that vary with changes in production or sales volume. Option A is incorrect as gross costs and net variable costs are not recognized categories of variable costs. Option B is incorrect as net variable costs and cost of goods sold are not two distinct categories - cost of goods sold is one of the two categories of variable costs. Option D is incorrect as gross variable costs and net costs are not recognized categories of variable costs.

Question 10

Overhead is another term for ________.
A) Seed capital
B) Net costs
C) Fixed operating costs
D) Management

Accepted Answer

Overhead refers to the fixed operating costs of a business, such as rent, utilities, and salaries that do not vary with the level of production or sales.

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

Accepted Answer

The contribution margin per unit is calculated by subtracting all variable costs per unit (including COGS and other variable costs) from the selling price per unit. Therefore, if you subtract other variable costs per unit from the total COGS per unit, you're not arriving at a meaningful figure in this context. The correct calculation for contribution margin per unit is sales price per unit minus total variable costs 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

Accepted Answer

Service businesses typically charge by the hour, making it the most logical unit of sale. Options A, C, and D are not typically used as units of sale for services.

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.

Accepted Answer

Paying expenses with a check provides a written record and proof of payment, which can be helpful for tracking expenses and for tax purposes.

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%

Accepted Answer

The contribution margin is calculated as (Sales - Variable Costs) / Sales. Here, variable costs include both COGS ($800) and other variable costs ($450), totaling $1,250. Thus, the contribution margin is ($2,500 - $1,250) / $2,500 = $1,250 / $2,500 = 50.0%.

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

Accepted Answer

The contribution margin is calculated as sales minus variable costs. Here, variable costs include COGS ($800) and other variable costs ($450), totaling $1,250. Subtracting this from sales ($2,500) gives a contribution margin of $1,250.

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

Accepted Answer

Depreciation is the process of allocating the cost of an asset over its useful life. This method allows a company to save money over time to replace expensive pieces of equipment by accounting for the decrease in the value of the asset through wear and tear, obsolescence, or market conditions. Inventory is a record of goods and materials held available in stock. Deductible refers to the amount of money that must be paid by an insured person before an insurance company will pay for the rest of the claim. Amortization refers to the process of spreading out the cost of an intangible asset (such as a patent or trademark) over its useful life.

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

Accepted Answer

Fixed and variable costs are commonly used categories for business costs. Gross and net refer to financial metrics, materials and labor are specific types of costs, and pre-tax and after-tax refer to taxation.

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

Accepted Answer

Profit per unit = Total profit/Number of units sold 
Profit per unit = $200,000/5,000 units 
Profit per unit = $40

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

Accepted Answer

Total profit can be calculated by subtracting total operating costs from total gross profit, which in this case would be $14,720 - $11,500 = $3,220. Therefore, the answer is A.

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

Accepted Answer

The answer of Carla sells hot coffee, cider and tea...

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

Total Revenue - ________ = Total Gross Profit

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

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

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

A litmus test for profitability is the ________.

There are two categories of variable costs: ________.

Overhead is another term for ________.

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

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

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

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?

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

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

Which two categories below are used for business costs?

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

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