Cash Flow & Profitability
Which explanation BEST accounts for the business having profit but still struggling to pay bills?
A. The business has high inventory levels tying up cash
B. The business has reduced its sales revenue
C. The business has low gross profit margins
D. The business has increased its advertising budget
A. The business has high inventory levels tying up cash
Profit ≠ liquidity. Cash is locked in stock.
The shop pays a monthly lease for its mall location regardless of sales volume.
How should this cost be classified?
A. Variable cost
B. Semi-variable cost
C. Fixed cost
D. Direct cost
C. Fixed cost
Rent does not change with sales volume.
If Pizza Planet Toy Shop increases its selling price while keeping costs constant, what happens to the break-even point?
A. It increases
B. It decreases
C. It stays the same
D. It becomes impossible to calculate
B. It decreases
Higher contribution margin lowers BEQ.
The owner decides to delay paying suppliers for 60 days to stabilize operations.
What financial concept is she attempting to improve?
A. Net profit margin
B. Working capital
C. Return on investment
D. Market share
B. Working capital
Extending payables improves short-term liquidity.
Why can large amounts of inventory create financial pressure for a business?
A. Inventory reduces product quality
B. Inventory ties up cash that could be used elsewhere
C. Inventory increases employee wages
D. Inventory reduces customer demand
B. Inventory ties up cash that could be used elsewhere
Which of the following would MOST likely be a variable cost for the shop?
A. Store rent
B. Employee salary
C. Packaging materials for each toy sold
D. Property taxes
C. Packaging materials for each toy sold
The break-even point is the point where:
A. Revenue equals expenses
Working capital is calculated as:
A. Revenue minus expenses
B. Current assets minus current liabilities
C. Total assets minus total debt
D. Sales minus inventory
B. Current assets minus current liabilities
Gross profit is BEST defined as:
A. Total revenue minus operating expenses
B. Sales revenue minus cost of goods sold
C. Sales revenue minus taxes
D. Total revenue minus fixed costs
B. Sales revenue minus cost of goods sold
Which of the following is considered an operating expense?
A. Cost of purchasing inventory
B. Store rent and utilities
C. Customer refunds
D. Sales revenue
B. Store rent and utilities
Contribution margin refers to:
A. Selling price minus variable cost per unit
B. Selling price minus fixed costs
C. Revenue minus taxes
D. Revenue minus rent
A. Selling price minus variable cost per unit
Liquidity refers to a business’s ability to:
A. Increase prices
B. Pay short-term financial obligations
C. Expand into new markets
D. Hire more employees
B. Pay short-term financial obligations
Net profit represents:
A. The amount of money left after all expenses are paid
B. Total revenue before expenses
C. Sales revenue minus inventory purchases only
D. Money earned before paying employees
A. The amount of money left after all expenses are paid
Which action would MOST help reduce operating costs?
A. Increasing product prices
B. Negotiating lower rent with the mall owner
C. Increasing inventory orders
D. Hiring more employees
B. Negotiating lower rent with the mall owner
Which action would LOWER the break-even point?
A. Increasing fixed costs
B. Lowering the selling price
C. Reducing variable costs
D. Increasing advertising expenses
C. Reducing variable costs
Which action would MOST improve the company’s cash flow?
A. Allow customers longer payment periods
B. Increase inventory purchases
C. Encourage customers to pay immediately
D. Reduce product variety
C. Encourage customers to pay immediately