the Business Costs And Revenue Quiz Part- II

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This is part- II to The Business Costs And Revenue Quiz. When running a business it is important while planning to ensure that the costs do not exceed total revenues you get. Do you think you are well informed on the balance between cost and revenues? To help ensure you are before the business exam. Take it up and see how ready you are.


Questions and Answers
  • 1. 

    Which of the following is a reason for managers knowing the costs of the business?

    • A.

      They will be able to increase output.

    • B.

      It will help them fix the price of the product(s).

    • C.

      The information would have to be published to shareholders.

    • D.

      Costs will tell the managers, without any other information, what the profits of the business are.

    Correct Answer
    B. It will help them fix the price of the product(s).
    Explanation
    Managers need to know the costs of the business in order to determine the appropriate price for their products. By understanding the costs involved in producing and delivering the product, managers can set a price that covers these expenses and ensures profitability. This knowledge allows them to make informed decisions about pricing strategies and ensures that the business remains competitive in the market.

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  • 2. 

    Which one of the following costs is most likely to be variable for a fast food restaurant?

    • A.

      The salary of the manager

    • B.

      The rent of the restaurant

    • C.

      The cost of the food supplies

    • D.

      The machinery used to cook the food

    Correct Answer
    C. The cost of the food supplies
    Explanation
    The cost of the food supplies is most likely to be variable for a fast food restaurant because it can fluctuate depending on factors such as the demand for certain ingredients, seasonal availability, and market prices. Unlike fixed costs such as the salary of the manager and the rent of the restaurant, the cost of food supplies can be adjusted and controlled by the restaurant based on their needs and sales volume. Additionally, the machinery used to cook the food is a one-time investment and not directly related to the day-to-day operations, making it less likely to be variable.

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  • 3. 

    The best definition of variable costs is:

    • A.

      They vary with the number of units produced.

    • B.

      They vary over time.

    • C.

      They vary with the prices charged by suppliers.

    • D.

      They vary with tax rates set by government.

    Correct Answer
    A. They vary with the number of units produced.
    Explanation
    Variable costs are expenses that change in direct proportion to the level of production or output. This means that as the number of units produced increases or decreases, variable costs will also increase or decrease accordingly. Variable costs may include expenses such as raw materials, direct labor, and direct utilities, which are directly tied to the production process. On the other hand, the other options mentioned in the question (vary over time, vary with prices charged by suppliers, vary with tax rates set by the government) do not accurately define variable costs, as they do not specifically relate to the number of units produced.

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  • 4. 

    If variable costs are $3 per unit, then the total variable costs of producing 3,500 units will be:

    • A.

      $3,500

    • B.

      $35,000

    • C.

      $1,050

    • D.

      $10,500.

    Correct Answer
    D. $10,500.
    Explanation
    The correct answer is $10,500. This is because the variable cost per unit is given as $3. To calculate the total variable cost, we need to multiply the variable cost per unit by the number of units produced. In this case, the number of units produced is 3,500. Therefore, the total variable cost is $3 * 3,500 = $10,500.

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  • 5. 

    The best definition of fixed costs are those that do not vary with:

    • A.

      Time

    • B.

      Seasons

    • C.

      Output

    • D.

      Number of workers.

    Correct Answer
    C. Output
    Explanation
    Fixed costs are expenses that remain constant regardless of the level of output or production. They do not change based on the amount of goods or services produced. Therefore, the correct answer is "output" as fixed costs do not vary with the level of output.

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  • 6. 

    The total revenue of a business is:

    • A.

      The same as profit

    • B.

      Equal to total costs

    • C.

      Quantity of units produced multiplied by cost of producing each unit

    • D.

      Quantity of units sold multiplied by the selling price.

    Correct Answer
    D. Quantity of units sold multiplied by the selling price.
    Explanation
    The total revenue of a business is calculated by multiplying the quantity of units sold by the selling price. This is because revenue represents the total amount of money generated from the sales of a product or service. It does not take into account any costs or expenses associated with producing or selling the product. Therefore, the revenue is not the same as profit, equal to total costs, or equal to the quantity of units produced multiplied by the cost of producing each unit.

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  • 7. 

    The break-even level of output is that number of units where:

    • A.

      Profit is at its highest level

    • B.

      Variable costs equal revenue

    • C.

      Total costs equal revenue

    • D.

      Variable costs equal fixed costs.

    Correct Answer
    C. Total costs equal revenue
    Explanation
    The break-even level of output is the point at which total costs equal revenue. This means that the company is neither making a profit nor incurring a loss. At this level of output, the company is able to cover all of its costs, including both variable costs and fixed costs, with the revenue generated from selling its products or services.

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  • 8. 

    If maximum output is 10,000 units, current output is 8,000 units and break-even output is 4,500 units, then the safety margin is equal to:

    • A.

      2,000 units

    • B.

      5,500 units

    • C.

      4,500 units

    • D.

      3,500 units.

    Correct Answer
    D. 3,500 units.
    Explanation
    The safety margin is the difference between the current output and the break-even output. In this case, the current output is 8,000 units and the break-even output is 4,500 units. Therefore, the safety margin is 8,000 units - 4,500 units = 3,500 units.

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  • 9. 

    A product sells for $7. Material and other variable costs are $3. Fixed costs are $60,000. The break-even level of output is:

    • A.

      15,000 units

    • B.

      60,000 units

    • C.

      20,000 units

    • D.

      We cannot tell from the information given.

    Correct Answer
    A. 15,000 units
    Explanation
    The break-even level of output is the point at which the total revenue equals the total costs, resulting in zero profit or loss. In this case, the product sells for $7 and the variable costs are $3 per unit. The fixed costs are $60,000. To calculate the break-even level of output, we can use the formula: Break-even level of output = Fixed costs / (Selling price per unit - Variable costs per unit). Plugging in the values, we get: 60,000 / (7 - 3) = 60,000 / 4 = 15,000 units. Therefore, the break-even level of output is 15,000 units.

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  • 10. 

    The best definition of the contribution made by a product is:

    • A.

      The profit made on each item sold

    • B.

      The revenue gained from selling each item

    • C.

      The difference between price and variable cost

    • D.

      The difference between price and fixed cost.

    Correct Answer
    C. The difference between price and variable cost
    Explanation
    The contribution made by a product refers to the amount of money left over after subtracting the variable cost from the selling price. It represents the portion of revenue that contributes towards covering fixed costs and generating profit. By calculating the difference between the price at which a product is sold and the variable cost associated with producing it, businesses can determine how much each item contributes to their overall financial performance.

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  • 11. 

    If total fixed costs of a business are $2,000 per week, variable costs are $3 per unit and the firm produces 500 units per week, then the average total cost is:

    • A.

      $3

    • B.

      $5

    • C.

      $2,003

    • D.

      $7.

    Correct Answer
    D. $7.
    Explanation
    The average total cost is calculated by adding the total fixed costs to the total variable costs and then dividing by the number of units produced. In this case, the total fixed costs are $2,000 per week and the firm produces 500 units per week. The total variable costs can be found by multiplying the variable cost per unit ($3) by the number of units produced (500), which equals $1,500. Adding the total fixed costs and the total variable costs gives a total cost of $3,500. Dividing this by the number of units produced (500) gives an average total cost of $7.

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  • 12. 

    Which of the following is the best definition of economies of scale?

    • A.

      Costs fall as output increases.

    • B.

      Costs per unit fall as the firm expands.

    • C.

      Average costs rise as the firm expands.

    • D.

      Fixed costs fall as output increases.

    Correct Answer
    B. Costs per unit fall as the firm expands.
    Explanation
    Economies of scale refers to the phenomenon where the average costs per unit decrease as a company expands its production. This is because as the firm increases its output, it can spread its fixed costs over a larger number of units, resulting in lower costs per unit. This allows the company to achieve higher levels of efficiency and profitability as it grows.

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  • 13. 

    Which of the following is NOT an example of an economy of scale as a computer manufacturer increases its scale of operation?

    • A.

      Supplies of components are bought at a lower average cost.

    • B.

      The price of the product to the consumer falls.

    • C.

      Expert managers can be employed to increase efficiency.

    • D.

      The most advanced equipment can now be purchased.

    Correct Answer
    B. The price of the product to the consumer falls.
    Explanation
    As a computer manufacturer increases its scale of operation, the price of the product to the consumer falls. This is because economies of scale allow the manufacturer to spread their fixed costs over a larger number of units, reducing the average cost per unit. This cost reduction can be passed on to the consumer in the form of lower prices. However, the other options mentioned are all examples of economies of scale. Buying supplies at a lower average cost, employing expert managers to increase efficiency, and purchasing the most advanced equipment are all ways in which the manufacturer can benefit from economies of scale and reduce costs.

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  • 14. 

    A detailed financial plan for the future’ is a definition of which of the following terms?

    • A.

      Scatter diagram

    • B.

      Sales revenue forecast

    • C.

      A budget

    • D.

      Estimate of production costs.

    Correct Answer
    C. A budget
    Explanation
    A budget is a detailed financial plan for the future that outlines projected income and expenses. It helps individuals or organizations allocate resources and make informed financial decisions. By creating a budget, one can track and control their spending, set financial goals, and ensure that their income is sufficient to cover expenses. It provides a roadmap for managing finances and achieving financial stability.

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  • 15. 

     business was budgeted to earn sales revenue of $28,000 last year and budgeted costs were $18,000. At the end of the year, the actual revenue was $29,000 and total costs were $17,000. Which of the following is the profit variance?

    • A.

      $2,000

    • B.

      $12,000

    • C.

      $1,000

    • D.

      $29,000

    Correct Answer
    A. $2,000
    Explanation
    The profit variance is calculated by subtracting the budgeted profit from the actual profit. In this case, the budgeted profit can be calculated by subtracting the budgeted costs from the budgeted sales revenue: $28,000 - $18,000 = $10,000. The actual profit can be calculated by subtracting the actual costs from the actual revenue: $29,000 - $17,000 = $12,000. Therefore, the profit variance is $12,000 - $10,000 = $2,000.

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  • Current Version
  • Mar 22, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Apr 25, 2010
    Quiz Created by
    Sachou10
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