Entrepreneurship and Small Business Management, 2e (Mariotti)
Chapter 12 Understanding and Managing Start-Up, Fixed, and Variable Costs
1) 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
Learning Obj.: LO 1
AACSB: Analytical thinking
2) 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
Learning Obj.: LO 1
AACSB: Analytical thinking
3) 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
Learning Obj.: LO 1
AACSB: Analytical thinking
4) 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
Learning Obj.: LO 1
AACSB: Analytical thinking
1
5) Overhead is another term for ________.
A) Seed capital
B) Net costs
C) Fixed operating costs
D) Management
Learning Obj.: LO 3
AACSB: Analytical thinking
6) Which of the following is not a category of fixed costs?
A) Depreciation
B) Utilities
C) Capital
D) Raw materials
Learning Obj.: LO 3
AACSB: Analytical thinking
7) 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
Learning Obj.: LO 2
AACSB: Analytical thinking
8) 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
Learning Obj.: LO 2
AACSB: Application of knowledge
2
9) 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
Learning Obj.: LO 3
AACSB: Application of knowledge
10) 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%
Learning Obj.: LO 2
AACSB: Application of knowledge
11) 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
Learning Obj.: LO 3
AACSB: Analytical thinking
12) An example of a service business’s unit of sale would be one ________ of service.
A) Dozen
B) Hour
C) Crate
D) Gross
Learning Obj.: LO 2
AACSB: Analytical thinking
3
13) 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
Learning Obj.: LO 3
AACSB: Application of knowledge
14) 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
Learning Obj.: LO 1
AACSB: Application of knowledge
15) Total Revenue – ________ = Total Gross Profit
A) Total operating costs
B) Total units sold
C) Total cost of goods sold
D) Total materials cost
Learning Obj.: LO 3
AACSB: Analytical thinking
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) = $600, Depreciation = $0. What are Carla’s fixed
costs?
A) $3,000
B) $2,700
C) $2,000
D) $3,500
Learning Obj.: LO 3
AACSB: Application of knowledge
4
17) 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
Learning Obj.: LO 2
AACSB: Application of knowledge
18) 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
Learning Obj.: LO 2
AACSB: Application of knowledge
19) 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
Learning Obj.: LO 2
AACSB: Application of knowledge
5
20) 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.
Learning Obj.: LO 4
AACSB: Analytical thinking
21) Fixed Operating Costs ________.
A) Are not included in COGS
B) Include expenses like the DSL bill and rent
C) Are not direct costs of creating each product
D) All of the above.
Learning Obj.: LO 3
AACSB: Analytical thinking
22) ________ is the general rise in the price of goods and service in an economy.
A) Inflation
B) Deflation
C) Tabulation
D) Fixation
Learning Obj.: LO 3
AACSB: Analytical thinking
23) Business start-up cost information can be obtained from ________.
A) Competitors
B) Industry data
C) Quotations from vendors
D) All of the above
Learning Obj.: LO 2
AACSB: Analytical thinking
6