Exam
Name___________________________________
TRUE/FALSE. Write ‘T’ if the statement is true and ‘F’ if the statement is false.
1)
Your company is effective if you establish a specific goal and accomplish that goal.
1)
2)
Your company is efficient if you set a specific goal and accomplish that goal with the use of
maximum resources.
2)
3)
Profitability is an absolute number that appears on the bottom line of an income statement.
3)
4)
Profit is an absolute number that appears on the bottom line of an income statement.
4)
5)
Another term for entrepreneurial profit is accounting profit.
5)
6)
When you go into business, your goal should be to earn both an accounting and an entrepreneurial
profit.
6)
7)
For a business using leverage, the owner of the business can always count on having to pay the
same interest payments on debt.
7)
8)
You are using financial leverage when you use your own money to finance your debt.
8)
9)
Chapter 11 bankruptcy occurs when a business has to liquidate all of its assets in order to pay off its
creditors.
9)
10)
Chapter 11 bankruptcy occurs when a business seeks court protection to hold off its creditors while
a plan is developed to pay off its creditors.
10)
11)
Chapter 7 bankruptcy occurs when a company is forced to liquidate all of its assets in order to pay
off its creditors.
11)
12)
When a corporation enters Chapter 7 bankruptcy, the stockholders don’t have to worry because
after the business is sold, they will receive their investment back.
12)
13)
Once a company sells more units of a product than are required to break even, the company will
make a profit.
13)
14)
When a company sells fewer units of a product than are required to break even, the company is
losing money.
14)
15)
Retail firms that sell hundreds of items will normally calculate break even for every product they
sell.
15)
16)
The degree of combined leverage is the product of the degree of operating leverage and the degree
of financial leverage.
16)
17)
In a leveraged approach, the break–even point is higher than in a conservative approach.
17)
18)
The degree of operating leverage can be explained by using the following 2 variables : sales and
earnings per share.
18)
19)
The degree of financial leverage can be explained by using the following 2 variables: operating
income and earnings per share.
19)
20)
The degree of combined leverage can be explained by using the following 2 variables: sales and
earnings per share.
20)
21)
Leverage uses those fixed costs of finance only to magnify a company’s return.
21)
22)
The lower the DOL, the greater the change in operating income will be as a result of a slight change
in sales.
22)
23)
If a company has no operating leverage, its degree of financial leverage is equal to its degree of
combined leverage.
23)
24)
Florida is a state that has the Homestead exemption.
24)
25)
President Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act on April 20,
2005.
25)
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
26)
Joan purchases a government bond for $10,000 that pays 7% annual interest. Jim purchases $20,000
worth of corporate bonds that pay 10% annual interest. If Joan’s goal is to earn $700 per year on her
investment, and Jim’s goal is to earn $2,000 per year on his investment, then
26)
A)
both Jim and Joan are effective.
B)
Jim is more efficient than Joan.
C)
Joan is more efficient than Jim.
D)
both A and B above are correct.
E)
both A and C above are correct.
27)
Obtaining the highest possible return with the minimum use of resources committed is the basic
definition of
27)
A)
effectiveness and efficiency.
B)
efficiency.
C)
effectiveness.
D)
none of the above.
28)
Accomplishing a specific task or reaching a goal is the basic definition of
28)
A)
efficiency.
B)
effectiveness and efficiency.
C)
effectiveness.
D)
none of the above.
29)
Sam quit his job as an accountant with We Keep Books Accurately to open his own accounting firm.
He earned $40,000 with the accounting firm We Keep Books Accurately. During the current year,
Sam had revenues of $150,000 and total expenses of $110,000. Sam earned an
29)
A)
accounting profit of $40,000.
B)
entrepreneurial profit of $40,000, but had an accounting loss.
C)
accounting profit of $40,000 and an entrepreneurial profit of $40,000.
D)
entrepreneurial profit of $40,000.
E)
Both A and D above are correct.
30)
Sam quit his job as an accountant with We Keep Books Accurately to open his own accounting firm.
He earned $40,000 with the accounting firm We Keep Books Accurately. During the current year,
Sam had revenues of $150,000 and total expenses of $110,000. Sam earned an
30)
A)
accounting profit of $40,000.
B)
entrepreneurial profit of $40,000, but had an accounting loss.
C)
accounting profit of $40,000 and an entrepreneurial profit of $40,000.
D)
entrepreneurial loss of $40,000.
E)
Both A and D above are correct.
31)
Sam quit his job as an accountant with We Keep Books Accurately to open his own accounting firm.
He earned $40,000 with the accounting firm We Keep Books Accurately. During the current year,
Sam had revenues of $190,000 and total expenses of $110,000. Sam earned an
31)
A)
accounting profit of $80,000 and an entrepreneurial profit of $40,000.
B)
accounting profit of $40,000.
C)
entrepreneurial profit of $80,000.
D)
entrepreneurial profit of $80,000, and an accounting profit of $40,000.
E)
Cannot tell with the information provided.
32)
Sam quit his job as an accountant with We Keep Books Accurately to open his own accounting firm.
He earned $40,000 with the accounting firm We Keep Books Accurately. During the current year,
Sam had revenues of $150,000 and total expenses of $110,000. For Sam, the opportunity cost of
going into business was
32)
A)
$110,000.
B)
$40,000.
C)
$150,000.
D)
zero, because he had a profitable business.
33)
Profitability is the same as
33)
A)
effectiveness.
B)
profit.
C)
return on investment.
D)
expectations of the owners.
E)
meeting a goal.
34)
You invested $5,000 in the Cog corporation and $5,000 in the Gear corporation. Both of these
corporations have $100 million in total assets. The Cog corporation had a net profit of $5 million
and the Gear corporation had a net profit of $10 million. You read their annual reports and both
companies had established a goal of having a net profit equal to 15% of total assets.
34)
A)
Cog is more effective than Gear.
B)
Cog is more efficient than Gear.
C)
Gear is more efficient than Cog.
D)
Gear is more effective than Cog.
E)
Cannot tell without more information.
35)
You invested $5,000 in the Cog corporation and $5,000 in the Gear corporation. Both of these
corporations have $100 million in total assets. The Cog corporation had a net profit of $5 million
and the Gear corporation had a net profit of $10 million. You read their annual reports and both
companies had established a goal of having a net profit equal to 10% of total assets.
35)
A)
Cog is effective but less efficient than Gear.
B)
Cog is effective and more efficient than Gear.
C)
Gear is effective but less efficient than Cog.
D)
Gear is effective and more efficient Cog.
E)
Cannot tell without more information.
36)
In order to determine the break–even point, we must identify several variables. At a minimum we
must know
36)
A)
variable costs.
B)
fixed costs.
C)
sales.
D)
all of the above.
37)
Normally to compute break even, the manufacturing firm will use ________ and the retail firm will
use ________.
37)
A)
discrete units; discrete units
B)
sales dollars; discrete units
C)
discrete units; sales dollars
D)
sales dollars; sales dollars
38)
Break–even analysis is the process of determining ________ before we begin earning a profit.
38)
A)
what price will be charged for a product, or how much net profit will be made
B)
how many units must be produced, or how much revenue must be obtained
C)
how much net profit will be made, or how many units will be produced
D)
how much revenue must be obtained, or how much net profit will be made
E)
what price we will charged for a product, or how many units must be produced
39)
The contribution margin in break–even analysis is derived by subtracting
39)
A)
variable cost per unit from fixed costs.
B)
variable cost per unit from price.
C)
fixed costs from variable costs.
D)
price from variable costs.
E)
fixed costs from price.
40)
All of the costs that a firm must pay, even if there are no sales are
40)
A)
sales costs.
B)
variable costs.
C)
prices charged.
D)
fixed costs.
E)
contribution costs.
41)
The basic formula for calculating break even is
41)
A)
FC/(P–VC).
B)
VC/(FC–P).
C)
FC/(VC–P).
D)
P/(FC–VC).
E)
VC/(P–FC).
Table 5–1. Steel Shelf Company
Category Cost Payment Period Cost
Rent Monthly $3,000
Utilities Monthly 1,100
Insurance Quarterly 1,200
Property Taxes Annually 6,000
Steel Per Shelf 9.00
Forming Per Shelf 0.25
Labor Per Shelf 0.75
Price Per Shelf 20.00
42)
Refer to Table 5–1. The Steel Shelf Company will break even with monthly production of ________
units, and sales of ________ dollars
42)
A)
5,000; 250
B)
500; 10,000
C)
250; 5,000
D)
10,000; 500
43)
Refer to Table 5–1. The Steel Shelf Company has variable costs per unit of
43)
A)
$10.00.
B)
$25.00
C)
$20,00.
D)
$18.33.
44)
Refer to Table 5–1. The Steel Shelf Company charges a price of ________ per unit.
44)
A)
$25.00
B)
$20.00
C)
$10.00
D)
$18.33
45)
Refer to Table 5–1. At 600 units of production, the Steel Shelf Company will make a profit of
45)
A)
$1,000.
B)
$12,000.
C)
$5,000.
D)
$6,000.
46)
Refer to Table 5–1. At 600 units of production, the Steel Shelf Company has monthly fixed costs of
46)
A)
$12,000.
B)
$5,000.
C)
$6,000.
D)
$1,000.
47)
Refer to Table 5–1. At 600 units of production, the Steel Shelf Company has total revenue of
47)
A)
$5,000.
B)
$12,000.
C)
$6,000.
D)
$1,000.
48)
Refer to Table 5–1. At 600 units of production, the Steel Shelf Company has total variable costs of
48)
A)
$1,000.
B)
$6,000.
C)
$12,000.
D)
$5,000.
49)
Refer to Table 5–1. At 300 units of production, the Steel Shelf Company
49)
A)
loses $2,000.
B)
earns $2,000.
C)
loses $1,000.
D)
earns $1,000.
50)
Refer to Table 5–1. The Steel Shelf Company has monthly fixed costs of ________ and a
contribution margin of ________.
50)
A)
$5,800; $10
B)
$11,300; $20
C)
$5,000; $10
D)
$5,000; $20
E)
$11,300; $10
51)
Refer to Table 5–1. The Steel Shelf Company has a monthly break–even quantity of ________
shelves.
51)
A)
580
B)
500
C)
250
D)
1,1300
E)
Cannot calculate with information provided.
Answer:
52)
Refer to Table 5–1. If the Steel Shelf Company wants to earn a profit of $3,000 per month they will
have to produce ________ shelves.
52)
A)
500
B)
800
C)
1,500
D)
1,000
Answer:
53)
Refer to Table 5–1. The Steel Shelf Company has variable costs of ________ per shelf.
53)
A)
$9.00
B)
$10.00
C)
$20.00
D)
$30.00
E)
$9.25
Answer:
54)
Refer to Table 5–1. The Steel Shelf Company has annual fixed costs of ________.
54)
A)
$69,600
B)
$60,000
C)
$56,400
D)
$135,600
E)
$5,300
Answer:
55)
Refer to Table 5–1. The Steel Shelf Company has to produce ________ shelves on an annual basis to
break even.
55)
A)
6,960
B)
13,560
C)
500
D)
6,000
E)
Cannot calculate with information that is provided.
Answer:
56)
Refer to Table 5–1. The Steel Shelf Company has to have total annual revenue of ________ in order
to break even.
56)
A)
$135,600
B)
$10,000
C)
$69,600
D)
$120,000
E)
Cannot calculate with information that is provided.
Answer:
Answer:
Table 5–2. Jane’s Dress Emporium
Category Cost Payment Period Cost
Rent Monthly $1,500
Utilities Monthly 400
Insurance Quarterly 300
Salaries Monthly 5,000
Sales Monthly 25,000
Cost of Goods Monthly 12,000
57)
Refer to Table 5–2. What will Jane’s Dress Emporium have to sell each month in order to break
even?
57)
A)
$25,000.00
B)
$13,461.54
C)
$13,846.15
D)
$14,583.33
E)
$15,000.00
58)
Refer to Table 5–2. Jane’s fixed costs are ________ per month.
58)
A)
$2,200
B)
$6,900
C)
$7,000
D)
$7,200
E)
$6,800
59)
Refer to Table 5–2. Jane‘s contribution margin is
59)
A)
0.52%.
B)
0.48%.
C)
48%.
D)
52%.
60)
Refer to Table 5–2. If Jane sells $10,000 worth of dresses next month, she will
60)
A)
earn a profit of approximately $1,660.
B)
lose approximately $1,800.
C)
lose approximately $1,660.
D)
earn a profit of approximately $1,800.
E)
Cannot tell with information provided.
61)
Refer to Table 5–2. If Jane sold $25,000 worth of dresses last month, she would have a
61)
A)
loss of approximately $6,000.
B)
profit of approximately $5,540.
C)
loss of approximately $5,540.
D)
profit of approximately $6,000.
E)
Cannot tell with information provided.
62)
The earning power of a company can be defined as the product of two factors:
62)
A)
net profit margin and total asset turnover.
B)
net profit margin and fixed asset turnover.
C)
fixed asset turnover and cash flow per share.
D)
total asset turnover and earnings per share.
63)
In a conservative approach, a company will have
63)
A)
high fixed costs.
B)
low variable costs.
C)
a narrow contribution margin.
D)
none of the above.
64)
In a leveraged approach, a company will have
64)
A)
high variable costs.
B)
a wide contribution margin.
C)
low fixed costs.
D)
none of the above.
65)
The higher the DFL
65)
A)
the greater a company’s earnings per share exceeds its operating income.
B)
the greater a company’s operating income exceeds its earnings per share.
C)
the less the cost of financing to the company.
D)
none of the above.
66)
If a corporation’s DOL is 3 then
66)
A)
for every 5 % change in sales, operating income will change by 15%.
B)
every 10% change in sales operating income will change by 30%.
C)
for every 1% change in sales, operating income will change by 3%.
D)
all of the above.
67)
Chapter 7 bankruptcy
67)
A)
is known as fresh start bankruptcy.
B)
requires liquidation of all of the assets of a company.
C)
requires payment to the creditor.
D)
all of the above
68)
Bankruptcy petitions are filed initially in
68)
A)
state bankruptcy court.
B)
U.S. federal bankruptcy court.
C)
municipal court.
D)
civil court.
69)
Which of the following holds true for the means test?
69)
A)
If the debtor’s income is greater than the state’s median income, he will have to take a means
test.
B)
The means test has been around for years.
C)
Everyone will have to pass a means test.
D)
The debtor has to be able to pay $200 per month for 5 years.
70)
A firm is experiencing an increase in variable costs. What can the firm do to maintain its
profitability?
70)
A)
Increase its fixed costs to balance out its increased variable costs.
B)
Decrease its fixed costs to break even sooner.
C)
Raise its price to increase its contribution margin.
D)
Lower its price to gain a greater market share.