Business mgt Class quiz
Questions Name:
1. Which of the following tasks is part of the role of the finance function?
A Choosing which pricing method to use
B Ordering raw materials from suppliers
C Paying the wages and salaries of the employees
D Providing cash flow information to management
Your answer [1]
2. Which of the following is the finance function of a business most likely to be concerned about?
A The communication methods used by the business
B The cost of running the business
C The ethical profile of the business
D The reputation of the business
Your answer [1]
3. Short term finance is most likely to be used by a business when it:
A has plenty of money in its bank account
B is looking for a new partner
C needs money to continue trading
D wants to build a new factory
Your answer [1]
2
4. One advantage to a company of using a bank loan to fund its expansion is that:
A business costs will fall
B cash flow monitoring will not be required
C interest is added to the amount that is owed
D the money can be paid back in instalments
Your answer [1]
5. Which of the following is a long term source of finance for an established company?
A A share issue
B An overdraft
C Sale of assets
D Trade credit
Your answer [1]
6. A business will make a loss if:
A its fixed costs are greater than its variable costs
B its revenue is greater than its total costs
C its total costs are greater than its revenue
D its variable costs are greater than its fixed costs
Your answer [1]
7. Which of the following is a consequence to a business of an increase in its monthly rent?
A Break-even quantity increases
B Profit increases
C Total revenue falls
D Variable costs rise
Your answer [1]
8. Which type of cost will not change even if output increases?
A Fixed cost
B Production cost
C Total cost
D Variable cost
Your answer [1]
9. A business sells 3000 items at 50p each.
Its revenue is:
A £1500
B 50p
C £15 000
D £3000
Your answer [1]
10. Financial data for Sciser Ltd in 2016 is shown below.
Revenue £75 000
Cost of sales £32 000
Expenses £28 000
Sciser Ltd’s gross profit in 2016 was:
A £4000
B £15 000
C £43 000
D £47 000
Your answer [1]
11. How is a firm’s gross profit margin calculated?
A Gross profit ÷ Revenue x 100
B Net profit + Expenses
C Revenue - Cost of sales
D Revenue ÷ Gross profit x 100
Your answer [1]
12. A clothes shop has a net profit margin of 10%.
This means:
A For every £1 of sales, the shop has costs of 10p
B For every £1 of sales, the shop makes 10p profit
C For every £10 of profit, the shop has costs of 10p
D For every £10 of profit, the shop makes £1 revenue
Your answer [1]
13. A guitar maker wishes to buy a computerised machine at a cost of £30 000. The forecasted net cash-
flow for each of the next four years is £9 000.
Based on the forecasted figures the average rate of return for this purchase will be:
A 5%
B 20%
C 30%
D 120%
Your answer [1]
14. Which of the following must be true for a business whose total revenue equals its total costs?
A The business has a cash flow crisis and needs an overdraft
B The business has made a net loss
C The business is making a profit
D The business is operating at its break-even level of output
Your answer [1]
15. Carlo charges £45 for his oven cleaning service. His variable cost for cleaning one oven is £10.
Carlo’s fixed costs are £1050 per week.
How many ovens does Carlo need to clean each week to break-even?
A 23 ovens
B 24 ovens
C 30 ovens
D 105 ovens
Your answer [1]
16. Calculating the break-even point for a business can help it work out its:
A average rate of return
B chances of making a profit
C liquidity position
D net profit margin
Your answer [1]
17. Cash is important in a partnership because:
A a business needs to pay its bills
B profits must be shared
C shareholders must be paid
D trade credit is not offered to partnerships
Your answer [1]
18. Which of the following is not a reason to produce a cash flow forecast?
A To estimate profit
B To plan future spending
C To predict when a business may run short of cash
D To set financial targets
Your answer [1]
19. A cash flow forecast for Coffee Enterprises is shown below.
April May June
£ £ £
Total inflow 18 000 16 000 21 000
Total outflow 16 000 22 000 20 000
Net cash flow 2000 -6000 1000
Opening balance 3000 5000 -1000
Closing balance 5000 -1000 0
Coffee Enterprises’ cash flow forecast is useful because:
A it alerts the owners to a likely cash shortage in May and June
B it provides a detailed breakdown of all business costs
C it shows the business will make a loss in May
D it will guarantee that the business gets an overdraft from the bank
Your answer [1]
20. An incomplete cash flow forecast for Swainston Sweets is shown below.
January February March
£ £ £
Cash inflow:
Revenue 20 000 22 000 21 800
Total inflow 20 000 22 000 21 800
Cash outflow:
Sweets 8200 9240 6900
Wages 4200 4200 4200
Overheads 8500 8500 8500
Total outflow 20 900 21 940 19 600
Net cash flow (900) 60 2200
Opening balance 1100 1160
Closing balance 1100 1160 3360
What is Swainston Sweets’ opening balance for January?
A (£2000)
B (£200)
C £200
D £2000
Your answer [1]
Mark scheme
Question Answer Marks Rationale
1 (d) 1 (a) This is a marketing function.
(b) This is a procurement function.
(c) This is a human resources function.
(d) Correct answer: Providing all kinds of financial information, including cash flow, is a finance
function.
2 (b) 1 (a) This may be a business-wide concern, but it is not the primary concern of the finance function.
(b) Correct answer: The finance function is concerned about money in all its forms – cash flow, profit,
cost and revenues.
(c) This is of concern to the business in general and the marketing function in particular; it is not a
specific concern of the finance function.
(d) This is of concern to the business in general and the marketing function in particular; it is not a
specific concern of the finance function.
3 (c) 1 (a) Short term finance is unlikely to be required if the business has plenty of money in its bank account.
(b) A new partner is a source of finance, rather than a reason to seek finance.
(c) Correct answer: Short term finance is usually needed when working capital is low.
(d) Physical expansion usually requires long term finance.
4 (d) 1 (a) Costs will rise because of the interest charge.
(b) Cash flow monitoring will still be required, and may be more important.
(c) Interest will be added to the cost of the loan; however this is a disadvantage to the business.
(d) Correct answer: This is an advantage as payments can be spread out, benefiting cash flow.
5 (a) 1 (a) Correct answer: A share issue is a long term source of finance which companies can use.
(b) An overdraft is a short term source of finance.
(c) The sale of assets is a one-off, so is not suitable for long term finance.
(d) Trade credit is a short term source of finance.
6 (c) 1 (a) The relationship between fixed and variable costs is irrelevant for the calculation of profit/loss.
(b) If revenue is greater than cost the business will make a profit.
(c) Correct answer: A loss occurs when costs are greater than revenue.
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(d) The relationship between fixed and variable costs is irrelevant for the calculation of profit/loss.
7 (a) 1 (a) Correct answer: An increase in rent will increase fixed costs and, therefore, the output required to
break-even.
(b) Costs will increase, so profit will fall.
(c) Rent is a cost; it has no effect on revenue.
(d) Costs will rise, but rent is a fixed cost rather than a variable cost.
8 (a) 1 (a) Correct answer: By definition a fixed cost does not vary with the level of output.
(b) Production cost would include both fixed and variable costs, and will therefore change with output.
(c) Total cost includes both fixed and variable costs, and will therefore change with output.
(d) By definition, a variable cost changes as output changes.
9 (a) 1 (a) Correct answer: 3000 x £0.50 = £1500.
(b) Revenue is confused with selling price.
(c) Erroneously multiplies by £50 rather than £0.50.
(d) Revenue confused with quantity sold.
10 (c) 1 (a) Erroneously calculates the difference between Cost of sales and Expenses.
(b) This is the net profit.
(c) Correct answer: Gross profit = Revenue – Cost of sales. £75,000 - £32,000 = £43,000.
(d) Erroneously calculates Revenue minus Expenses.
11 (a) 1 (a) Correct answer: The gross profit margin is gross profit as a proportion of sales.
(b) This is a way to calculate gross profit, rather than the gross profit margin.
(c) This is a way to calculate gross profit, rather than the gross profit margin.
(d) Formula inverted.
12 (b) 1 (a) Incorrect.
(b) Correct answer: Net profit margin is calculated using the formula: Net profit/Revenue. A 10% NP%
would mean that for every £1 of takings a shop gets it makes 10p profit.
(c) Incorrect.
(d) Incorrect.
13 (a) 1 (a) Correct answer: (£36,000 - £30,000)/£30,000 x 100 ÷ 4 years = £6000/£30,000 x 100 ÷ 4 years =
5%
(b) Correct method but forgets to divide by 4.
(c) Uses revenue rather than profit i.e. £36,000/£30,000 x 100 ÷ 4 = 30%
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(d) Uses revenue rather than profit and forgets to divide by 4 i.e. £36,000/£30,0000 x 100 = 120%.
14 (d) 1 (a) Just because costs equal revenues it does not necessarily mean the business has a cash flow crisis.
(b) To make a loss, costs would need to be greater than revenues.
(c) To make a profit, revenues would need to be greater than costs.
(d) Correct answer: Break-even is the point at which total cost equals total revenue.
15 (c) 1 (a) Erroneously divides fixed costs by selling price, ignoring variable costs.
(b) As answer A, but remembers that non-integer values of break-even should be rounded up to the
nearest whole unit.
(c) Correct answer: BE = FC/(SP-VC). BE = £1050/£35 = 30.
(d) Erroneously divides fixed costs by variable cost, ignoring selling price.
16 (b) 1 (a) Break-even will not help here. The ARR formula needs to be used.
(b) Correct answer: All output beyond the break-even level should lead to the business making a profit.
(c) A cash flow forecast, rather than a break-even calculation, will help a business ascertain its liquidity
position.
(d) Net profit margin cannot be worked out using break-even.
17 (a) 1 (a) Correct answer: Cash is important to all businesses, including partnerships, because the business
needs to pay its bills.
(b) Profits do need to be shared in a partnership, however this is not a reason why cash is important to
the business.
(c) There are no shareholders in a partnership.
(d) Trade credit is available on merit to all types of businesses, including partnerships.
18 (a) 1 (a) Correct answer: A cash flow forecast cannot be used to estimate profit.
(b) A cash flow forecast can be used to plan future spending.
(c) A cash flow forecast can be used to predict when a business may run short of cash.
(d) A cash flow forecast is one of many documents that can be used to set financial targets.
19 (a) 1 (a) Correct answer: This particular cash flow forecast shows that the business is short of funds in May
and June.
(b) Incorrect, this cash flow gives summary details only.
(c) This cash flow shows that the business has a negative closing balance in May, however this should
not be confused with a trading loss.
(d) Banks frequently request a cash flow forecast from a business applying for an overdraft, however the
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offer of an overdraft facility is still not guaranteed.
20 (d) 1 (a) Correct calculation of ‘£2000’ but concludes that the answer is negative.
(b) Erroneously deducts the closing balance of £1100 from the net cash flow figure of £900.
(c) Erroneously deducts the net cash flow figure of £900 from the closing balance figure of £1100.
(d) Correct answer: Opening balance + Net cash flow = Closing balance.
Therefore, £x + (£900) = £1100. Therefore x = £2000.
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